Federal agency hopes to squeeze plan sponsors and custodians for leaner fees and more disclosure on qualified retirement accounts. Experts warn that Washington retirement plan cops won’t tolerate schemes to hide fees any more. After the disasters of the recent recession, the regulators are cracking down on retirement plans that trick workers into buying more expensive mutual funds […]
Now that markets have returned to pre-2008 benchmarks, alternative asset classes are gaining popularity as a way to demonstrate value and manage risk. One overnight best seller is low-cost ETFs. Many wealth managers now say they are just right for trusts. Even the most buttoned-down trust portfolios are moving beyond blue-chip stocks and Treasury bonds […]
At a time when Nevada is suffering from the worst financial crisis since the great depression, Nevada’s top banking cop George E. Burns says he’s done a good job keeping the state’s financial institutions safe. Since George Burns took over the job safeguarding Nevada’s banks and trust companies in late 2007, his tenure has been marked by the […]
A lot of the “sure things” the trust industry was betting on a year ago failed to pan out in 2010, while plenty of “impossibilities” ended up coming true. This year, a split Congress means the only thing we can count on is being surprised. personal statement writing service The center of the financial universe […]
When $178 billion in trust assets are sold for $351 million a greater price down the road may be paid. Analysts say the legendary trust bank’s forced merger may benefit rivals and independent trust firms as Wilmington HNW clients, fiduciary officers and wealth managers may now be in play. When Wilmington Trust agreed to a $351 million merger […]
Marital Trusts May Block Steinbrenner and Kluge Heirs Reaping Billions from 2010 Estate Tax Loophole
Even in a year of no federal death tax, top estate planners warn that marital trusts can cloud the issue. Not even billionaires may be able to pass on their wealth tax-free. While even Forbes is grousing about how billionaires like John Kluge are cheating the IRS by dying during the federal death tax holiday, […]
Compensation tests start in six months. Fiduciaries still have questions about what they need to show the examiner to prove that they’re pushing out commission-based securities sales. Bank examiners have started checking on trust companies to make sure that everyone can either demonstrate that they’re obeying Regulation R, even though the specifics still perplex industry […]
South Dakota is becoming the top choice for trust providers. With ten new launches this year and a roster of 50 institutions shortly, it’s easy to see why banks and advisors alike are flocking to the wealth-friendly state. But despite the welcome mat, screening for new players “isn’t easy.” This week, the South Dakota Division […]
Trust clients expecting to deduct bundled fees to the limit of the law may need to find providers who can break down fees as the IRS requires. Two years ago, the US Supreme Court in Knight v. Commissioner held to be eligible to deduct investment management fees in a trust, they cannot be grouped together or bundled with […]
Decade-old trust feature that splits trustee and advisor into separate operations has become accepted practice for banks and trust companies nationwide; but questions remain: will they last?
On the surface, directed trusts are an obvious win for everyone. Splitting the administration of a newly created trust from the responsibility of managing the assets within it lets legacy advisors keep their accounts and custody provider—such as Schwab or Fidelity. Trustees avoid the headaches of managing exotic assets, while their clients can feel secure knowing that experts are in charge of every aspect of their wealth.
Jeffrey Lauterbach gets credit for turning the concept into a trust operation that propelled his firm, Capital Trust, from zero to $6 billion in trust assets in six years. “It was always market driven,” he told me in a recent interview. “Advisors told us want they wanted, and we delivered.”
Lauterbach sold his operation in 2005, which was subsequently sold to Wilmington Trust in 2007. He added, “Wilmington tried to make a go of it by itself, but didn’t stick with it long enough to make it work. We did”
Today, firms like Advisory Trust of Delaware (Capital Trust’s successor, owned by Wilmington Trust), Santa Fe Trust, Reliance Trust and Wealth Advisors Trust Company of South Dakota are actively courting advisors who want to add value without handing off the relationships they’ve worked so hard to build. Fees are generally split between trustee and investment manager, which helps make sure everyone stays happy.
These advisor-oriented trust companies are also promoting the directed trust model directly to wealthy people who may benefit from a trust but don’t feel like handing the reins of a family business, for example, to a relative stranger who knows nothing about how to keep the business going. In these cases, setting up a directed trust lets insiders stay in charge and still enjoy the other advantages of ownership under the trust structure.
“A corporate trustee doesn’t want to get involved in running a closely held business, and families don’t want corporate trustees interfering in a lot of their decisions,” trusts and estates lawyer Bruce Stone told Lawyers USA (a professional monthly for the legal profession) back in 2007. “With a directed trust, the corporate trustee only has to do certain things.”
Liability in the Details
So far so good, but if things go wrong, the question of who gets blamed still gets decided on a state-by-state basis. The limits of a trustee’s responsibility to monitor the advisors assigned to direct the trust’s investments are often nebulous, and some have been sued for failing to spot and stop misconduct fast enough.
It’s a controversial topic even among The Trust Advisor’s readership. When we posted back in January our analysis of the most trust-favorable states, estate planners piped up with corrections.
“In your chart, you indicated that Florida doesn’t have a power to direct,” wrote Lester Law, a senior vice president at U.S. Trust Bank of America Private Wealth Management working in Naples, Florida. “Can you review the … statute and let me know what you think?” And Boulder, Colorado attorney Scott Robinson alerted us that “The chart indicates that Wyoming does not have a directed trust statute. Wyoming does in fact have such a statute.”
In an influential 2007 white paper on the subject which may be downloaded, “Directed Trusts: Can Directed Trustees Limit Their Liability?,”