Posts Tagged Directed Trusts
Trust Firm Launches “Why Pay More for Trust Services” Marketing Campaign
Posted by Scott Martin in News on September 10, 2011
Alaska Trust says frugal fees are better for both clients and advisors alike. New low fixed fees and advisor controlled directed trust program makes Alaska Trust a top choice for trust services.
Best known as a provider of full-service managed trusts at made-to-measure prices, Alaska Trust has started turning heads for offering its directed trusts at a flat fee.
As part of the company’s push into the advisory market, it has eliminated basis point pricing and is simply charging a fixed, flat fee, typically $3,500 a year, for all directed trusts — large or small. Read the rest of this entry »
Provident Trust Launches Campaign to Help Advisors Get Smarter, Wealthier
Posted by Scott Martin in News on February 12, 2011
CEO says the “Professional Advisors Alliance” creates a pathway to provide RIAs, estate planners, CPAs and others everything they need to sell, support and profit from trust relationships. The Nevada-based trust company says advisors can sample support with a “free guide” at www.providentfreereport.com.
Provident Trust Group, the fast-tracked trust provider that was the focus of our rags to riches story last year, intends to redefine the way advisors handle trust business going forward.
“Advisors have been given the short end of the stick when it comes to hand-holding lucrative client relationships.” says Theresa Fette, Provident’s co-founder and CEO.
The near $1 billion Las Vegas-based powerhouse sees advisors and estate planners as the key to growing itself and along with it, the advisors’ business as well.
Its latest strategic marketing campaign is stunning in its outside-the-box audacity.
“The state of the art in the industry right now seems to be reassuring advisors, accountants and lawyers who work with high-net-worth clients that the trust company is not going to actively compete against the advisor,” Fette added.
A full platform for “trust advisor” support
To achieve this goal, Provident is reaching out with a wide range of issue-oriented, product-agnostic educational materials, white-label marketing support and even consulting fees for advisors who help their clients move their money into the company’s trust vehicles.
The fee proposition in itself represents a quantum leap forward for an industry that is still coming to terms with the fee-splitting aspects of directed trust arrangements.
While Provident does embrace directed trusts, in which outside advisors can go on investing their clients’ wealth — and booking the management fees — even after it is granted to a trust, the consulting fee gives advisors a way to go beyond simply protecting their existing business.
In fact, creating an incentive for recommending various forms of trust can make “trust advisor” a separate profit center for advisors who previously relied on retirement planning, investment selection or some other specialty to pay the rent.
“This provides them with a way to justify the time and expertise they put into helping their best clients set up trusts and capture recurring revenue as well,” Fette explains.
Naturally, Provident reaps its own rewards in the form of administration and custody fees, as well as the sheer economies of scale that increased market share is already creating.
Back in September, the company only had $750 million in custody across maybe 10,000 accounts.
Now, Fette tells us Provident has captured another 2,000 accounts and another $75 million, which translates into annualized growth of about 20%.
Compare that to what Bernard Garbo at Trust Updates has determined is an 8% average growth rate for trust companies in this size bracket, and the success story becomes crystal clear.
Business development through private label reports
Along with Jason Helquist, the company’s co-founder and chief compliance officer, Fette is devoted to the idea that the more an advisor knows — especially about a complex field like trusts — the better equipped he or she will be to turn it into a profitable business.
“We believe very strongly that business development is rooted in education,” Fette says.
“Based on a webinar we did recently, one referring advisor was able to take a product idea using 401(k)s and alternative investments and turn it in $25 million in AUM,” she adds.
Provident’s educational support also plays into this theme as well.
The first reports include “The Extended Bush Tax Cuts in Plain English,” which lays out the impact of the 2011 tax overhaul on investors and small business owners. (Click HERE to receive it.)
Provident retained San Francisco based, Financial Marketing Associates to help develop its marketing strategy, produce reports and launch an email marketing campaign to trust firms, estate planners, financial advisors, life insurance agents and FINRA broker-dealers.
The first report and others on asset protection trusts and directed trusts can be branded to include the advisor’s name on the cover and content they may contribute.
Future publications in the series will focus on tax planning and other topics.
The goal here is not to sell Provident’s products, but to expand the pool of professional advisors out there who can recognize when it might be appropriate to suggest that a client investigate a trust.
As the provider of all this information, Provident is likely to be the first company that advisors call when and if they do need help setting up a trust for a client.
That’s fine with Fette, but it’s not the immediate goal, she says.
“These are product-neutral. Of course we can help with the implementation, but they’re really about improving the level of practice out there to everyone’s benefit,” she explains.
“Some practitioners use old and cold law and that’s ultimately unfortunate for their client.”
More progress down the road
Provident has lined up brochures and other client-oriented marketing materials along with a trust savvy sales team to support the advisor. The strategy parallels the role of a traditional mutual fund or direct participation program wholesaler, but in the trust space.
Like a wholesaler, Provident aims to teach its affiliates — members of what Fette calls the Professional Advisor Alliance Program — how to sell trusts to clients who could benefit from them.
The clients win because they get the benefit of the finest estate and tax planning expertise out there, along with the most sophisticated vehicles and strategies.
The advisors win. And Provident gets a shot at becoming a much bigger player in the trust industry.
It’s ambitious, but that’s the way Fette and Helquist think.
“I consider Nevada the most progressive state in the country as far as trust law is concerned,” Fette says.
“We have some of the best attorneys in the country and one of the most progressive environments for setting up trusts,” she adds.
“I want Provident to be the most progressive trust company in the most progressive state in the country.”
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the reporting and research.
Alaska, Delaware, Nevada, South Dakota Remain Top Trust States
Posted by Scott Martin in News on February 5, 2011
Tennessee and Rhode Island make our favorites list, but Hawaii just doesn’t get the recipe right. New rules predicted for new South Dakota trust firms.
The battle to woo trust business heated up last year as trust advisors and estate planners rushed to take advantage of the 2010 tax environment — and lawmakers scrambled to make their states look as attractive as possible.
Our 2011 ranking of the top trust states corrects a few oversights from last year, updates for new developments and addresses a few controversies.
Tennessee and Rhode Island make the list this year, at Tier 2 and Tier 3, respectively. Idaho and Wisconsin, which offer out-of-state trusts little real benefit beyond dynastic trust arrangements, drop off.
Checking all the boxes…or else
To make a serious bid for a share of the $1 trillion personal trust market, you really need to provide dynastic trusts, directed trusts and asset protection trusts, plus favorable tax treatment for non-residents.
“Fail to check a box as you go through the list, and that state might automatically get crossed off,” says South Dakota trust attorney Daniel Donohue, a partner in Davenport Evans Hurtwitz & Smith.
“You might not need to use a type of trust now, but family members are always active and doing things, so you might want to make use of those statutes down the road,” he added.
This is especially important in dynastic scenarios where advisors have to reckon with family members who haven’t even been born yet, but may eventually need a way to shield a trust’s assets from creditors decades from now.
In fact, despite Florida’s efforts to allow asset protection trusts this year, its failure to do so was one reason that kept it from joining the Big Four — Alaska, Delaware, Nevada and South Dakota — which offer just about everything on the menu.
As it is, Florida does allow directed trusts, which let outside advisors manage the underlying assets, as well as a substantial 360-year dynastic trust period.
“Florida is a good example of a state that doesn’t belong near the top but doesn’t belong at the bottom either,” explains Steve Oshins, Las Vegas estate attorney and author of Nevada’s 365-year dynastic trust statutes. “Their dynasty trust provisions are okay.”
Delaware has taken care to keep its trust code current while building on its own reputation as a high-net-worth mecca where assets can remain in trust not just for centuries, but forever.
|
The Best States for Trusts |
|||||||
|
Tier |
State |
State Income Tax |
Directed Trust Statute |
Asset Protection Trust |
Dynasty Trust Ability |
Number of Trust Cos. |
Time Zone (from NY) |
|
1 |
No |
Yes |
Yes |
1000 yrs. |
5 |
(-) 4 |
|
|
1 |
Residents |
Yes |
Yes |
Perpetual |
53* |
(-) 0 |
|
|
1 |
No |
Yes |
Yes |
365 yrs. |
18 |
(-) 3 |
|
|
1 |
No |
Yes |
Yes |
Perpetual |
58 |
(-) 1 / 2 |
|
|
2 |
No |
Yes |
No |
360 yrs. |
29 |
(-) 0 |
|
|
2 |
Residents |
Yes |
Yes |
Perpetual |
25 |
(-) 0 |
|
|
2 |
Residents |
Yes |
Yes |
360 yrs. |
22 |
(-) 1 |
|
|
2 |
No |
Yes |
Yes |
1000 yrs. |
11 |
(-) 2 |
|
|
3 |
Yes |
Yes |
Uncertain |
1000 yrs. |
11 |
(-) 2 |
|
|
3 |
Residents |
No |
No |
Perpetual |
20 |
(-) 0 |
|
|
3 |
Yes |
No |
Yes |
Perpetual |
6 |
(-) 0 |
|
|
3 |
Yes |
No |
Yes |
1000 yrs. |
7 |
(-) 2 |
|
|
All tiers listed in alphabetical order. States links to state trust statutes. |
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|
Data: February 2011. © 2011 TheTrustAdvisor.com |
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South Dakota is too good to be true
And South Dakota has definitely established its credentials for no-nonsense service on directed trusts in particular.
However, South Dakota’s long ride with a $200,000 capital requirement may come to rest this year as more state trust regulators continue to complain that their entry rules are too easy.
States like Nevada, New Hampshire, Pennsylvania, Delaware, Florida and others all require $1 million or more to qualify for a trust license.
Recently, a South Dakota trust firm was prevented from doing business in Pennsylvania unless it posted $2 million in capital.
For several years, banking authorities in Florida have been annoyed with South Dakota trust firms operating there without meeting their $2 million capital requirements to do business.
Last year, the Florida banking department denied a new South Dakota trust company local operating privileges because its capital was too low. Experts say more of that is to come.
With 58 trust firms now based in South Dakota and operating in all 50 states and abroad, the South Dakota regulator will likely feel the heat and tighten up to prevent more regulator complaints and bad publicity.
Is it a matter of asset protection or nothing?
However, the ability to provide a high level of asset protection may emerge as the most important factor in how the various more-or-less trust-friendly states differentiate themselves in 2011.
“I believe more and more emphasis is being put on asset protection,” Oshins says.
“If so, that helps break away Nevada from the other top-tier states, given that it has the leading self-settled asset protection trust laws,” he added.
Last year, uncertainty about the future of the tax code drove a lot of middle-market families to move their money into trusts.
But since the eleventh-hour Congressional compromise raised the exemption to $5 million — well above the level where it could apply to any but the wealthiest Americans — the trust industry’s priorities are rotating.
The logic here is fairly simple. While raising the estate tax exemption from $1 million to $5 million lets all but 3,500 families a year off the estate tax hook, the number of affluent doctors, entrepreneurs and potential divorcees out there who could benefit from asset protection trusts remains fairly constant.
Asset protection may become a more important factor in next year’s rankings, but that may not help Hawaii make it onto the list.
The Aloha State tried to make a big splash in the industry by allowing asset protection trusts last summer. But the statute was so diluted by restrictions and added fees that it just didn’t impress many onshore family offices.
Shortly after we published our 2010 survey, we reported that New Mexico was moving closer to enacting more trust friendly rules to attract trust business. That may not be the case. Shortly before press time this week, we learned that one of New Mexico’s largest trust firms was jumping ship and filed for a South Dakota trust charter this week.
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the reporting and research.
Permalink: http://thetrustadvisor.com/news/states2011
Trust Firm Pulls in $70 Million with “Directed Trusts Made Simple” Campaign
Posted by Jerry Cooper in News, Sales and Marketing on October 7, 2010
In less than 30 days, Wealth Advisors Trust’s new email marketing program has produced millions in new advisor referred accounts. The firm’s business development team says “the phones have been ringing off the hook.”
South Dakota-based Wealth Advisors Trust Company low-risk strategy has paid off in a big way by paving the way to become the new home for $70 million and counting in directed trust account relationships.
The firm’s co-founder Matt Paladidi told us, “We are flooded with new solid leads.”
He expects to see $90 to $100 million or more on their books before the end of the year. All of this became possible by publishing a special report, “Directed Trusts Made Simple,” exclusively distributed by email.
The complimentary report tells advisors everything they need to know about marketing directed trust arrangements. It explains how these vehicles work and why they reduce friction between advisors and traditional trust companies.
Wealth Advisors Trust retained Mass. based Financial Marketing Associates to help produce the report and launch the email marketing campaign to estate planners and advisors.
“Directed Trusts is the first in a series to come,” says Paladini.
The report offers an overview of how traditional trust accounts work and how directed trusts are different, authors Christopher Holtby and Chuck Sharpe (now the president of Wealth Advisors Trust) focus most of the discussion on the nuts and bolts of bringing trust services into an investment-based practice.
Holtby and Sharpe have good, actionable advice on everything from how to pick a trust company for your client to how to integrate trust into your prospecting activities.
While they probably wouldn’t mind if readers used Wealth Advisors Trust exclusively, they recognize that there are a lot of directed trust companies out there and that the important thing is finding the right client-trustee-advisor fit.
In fact, some of the best advice in the white paper is on how to interview prospective trust companies to make sure an individual client gets the best possible service.
No need to compete with advisors
Directed trusts formally split the duties of running the trust from the responsibility for managing the assets in it.
The trustee handles the complex paperwork and earns an administration fee. The investment manager — usually the advisor who suggested that a client open the trust in the first place — keeps control of the investment account.
Because the advisor isn’t losing the assets, this arrangement eliminates a lot of the internal conflict that putting client assets into trust used to entail.
On the one hand, wealthy clients can reap big benefits from shielding their money from estate and income tax or from creditors.
But on the other side of the coin, advisors were understandably reluctant to refer their best accounts to full-service trust companies that have built up aggressive in-house wealth management teams of their own.
However, directed trust companies like Wealth Advisors Trust are happy to handle the trust side of the business and leave the investing to the specialists. In fact, very few even have the ability to manage the investment side even if they wanted to do so.
To receive a copy of the report, click link below: http://www.thetrustadvisor.com/email/scripts/watc_sr_requests_subscribe.html
Jerry Cooper, senior editor, The Trust Advisor Blog.
Permalink: http://thetrustadvisor.com/news/watc-success
Trust Firm Launches “Directed Trusts Made Simple” Campaign
Posted by Scott Martin in News on September 11, 2010
Wealth Advisors Trust Company gives advisors a crash course in how to provide a full range of trust services without losing their best clients to the competition.
In the past, trust companies and independent investment advisors have had an uneasy relationship at best. But now, with about $41 trillion at stake as the Baby Boom retires, the stakes have never been higher — and directed trusts are emerging as a way to let everyone win.
South Dakota-based Wealth Advisors Trust Company is one of a new generation of independent trust companies that cater exclusively to the investment advisors themselves.
But as the firm’s co-founder Christopher Holtby told us, “We are finding that advisors and clients alike simply don’t understand how trusts work.”
He added, “In order for us to do our job right, we need to make sure that our client’s and the advisors we work with understand the basics of how trusts work.”
Wealth Advisors published a new special report, “Directed Trusts Made Simple,” that tells advisors everything they need to know about how these vehicles work and why they reduce friction between advisors and traditional trust companies.
You can receive a complimentary copy here, click here.
Wealth Advisors Trust retained Mass. based, Financial Marketing Associates to help produce the report and launch an email marketing campaign to estate planners and advisors. “Directed Trusts is the first in a series to come,” Holtby promises.
After an overview of how traditional trust accounts work and how directed trusts are different, authors Christopher Holtby and Chuck Sharpe (now the president of Wealth Advisors Trust) focus most of the discussion on the nuts and bolts of bringing trust services into an investment-based practice.
Holtby and Sharpe have good, actionable advice on everything from how to pick a trust company for your client to how to integrate trust into your prospecting activities.
While they probably wouldn’t mind if readers used Wealth Advisors Trust exclusively, they recognize that there are a lot of directed trust companies out there and that the important thing is finding the right client-trustee-advisor fit.
In fact, some of the best advice in the white paper is on how to interview prospective trust companies to make sure an individual client gets the best possible service.
No need to compete with advisors
Directed trusts formally split the duties of running the trust from the responsibility for managing the assets in it.
The trustee handles the complex paperwork and earns an administration fee. The investment manager — usually the advisor who suggested that a client open the trust in the first place — keeps control of the investment account.
Because the advisor isn’t losing the assets, this arrangement eliminates a lot of the internal conflict that putting client assets into trust used to entail.
On the one hand, wealthy clients can reap big benefits from shielding their money from estate and income tax or from creditors.
But on the other side of the coin, advisors were understandably reluctant to refer their best accounts to full-service trust companies that have built up aggressive in-house wealth management teams of their own.
However, directed trust companies like Wealth Advisors Trust are happy to handle the trust side of the business and leave the investing to the specialists. In fact, very few even have the ability to manage the investment side even if they wanted to do so.
Scott Martin, contributing editor, The Trust Advisor Blog.
To receive a copy of the report, click link below: http://www.thetrustadvisor.com/email/scripts/watc_sr_requests_subscribe.html
Permalink: http://thetrustadvisor.com/news/watc
New SEC Custody Rule Boon for Directed Trust Providers
Posted by Jerry Cooper in News on March 19, 2010
Audit and compliance fees are sending RIA trustees to independent trust companies. Providers welcome the new business.
A new SEC rule that took effect last Friday leaves thousands of RIAs facing annual surprise audits and has triggered a surge of new business for trust companies that specialize in lightening the load.
The audits are part of a package of new rules adopted by the SEC last year in response to the Ponzi scheme perpetrated by Bernard L. Madoff. Under the new system, an advisory firm the SEC considers to have custody over client assets has to pay for an annual audit to properly account for all funds and trades.
According to SEC records, the new rule affects 10 percent of the 25,000 RIAs, including those who handle trust accounts for families, charities and retirement plans such as 401(k)s and ESOPS.
With few exceptions, trustees are now deemed to have custody, but advisors who let a corporate trustee handle the trustee work are off the hook.
Christopher Holtby, president of Wealth Advisors Trust Company, tells me that the new rule is a boon for companies like his, which specialize in doing just this.
“It lets us do your heavy lifting.” he said. Dan Ehrmentraut, JD is Wealth Advisors’ Director of Business Development, comes to Wealth Advisors Trust Company with over 20 years experience in the directed trust advisory business.
By partnering with a separate trust administrator, advisors can go on managing their clients’ assets without being considered the custody provider. The arrangement is known as a directed trust.
The decade-old trust feature that splits trustee and advisor into separate operations has become accepted practice for banks and trust companies nationwide. Trust Advisor Blog wrote a story several weeks ago that explained how they work.
I spoke to several accounting firms recently to determine how expensive the compliance audits will be. Estimates range from a low of $16,000 all the way to $100,000, largely depending on the stature of the firm.
The expensive part of the engagement involves an internal control report similar to a SAS‑70 audit, which must be received by the SEC within six months of becoming subject to the requirement. In addition, advisors must respond to new questions on a revised Form ADV.
Given these headaches, Christopher Holtby at Wealth Advisors Trust tells me that directed trust is a “win-win situation” because there aren’t any conflicts of interest and “if you work the math out, our fee is substantially lower than the compliance cost.”
Holtby’s firm is based in South Dakota, where trust rules are most favorable to advisors. His firm can also support dynasty and asset protection trusts, which are most desirable with high-net-worth investors to complement their estate plans.
MULTIFAMILY OFFICE PROVIDERS AFFECTED
Many advisors are still trying to work through compliance problems, says Valerie Baruch, assistant general counsel of the Investment Adviser Association, a Washington, D.C.-based trade group that has been on top of this issue since the beginning.
Over the last few months, advisors have wrestled with serious confusion as to who needed to comply. The SEC eventually posted clarifications on its website that dealt squarely with the central question:“If an employee of an advisory firm serves as a trustee to a firm, does the advisory firm have custody?”
The answer to the question, according to the SEC, is “yes.” However, the clarification, released only a week before the new rule went into effect, did not give advisors much time to shop for accountants or deal with the issue properly. While the Trust Advisor Blog received many questions from advisors over the last several weeks concerning this, the matter seems to have been laid to rest—for the time being.
In addition to advisors who serve as trustees, those who provide multifamily office services also come under scrutiny of the new SEC custody rules.
I spoke to Mari-Anne Pirsarri, a Washington, D.C.-based lawyer, who told me that any time an advisory firm has the ability to direct the custodian to pay a third party, the SEC says the advisor has custody.
David Newkirk, a managing director with Schwab Institutional, told me that when advisory firms serves as trustees or have the ability to tell us to send money to third parties, they effectively have trust custody. He added “We beat this question up pretty well,” he told me.
I also spoke to Steve Austin at Fidelity and that firm’s position is identical to Schwab’s. “It’s cut and dry,” he said. “The advisor has custody when they tell us what to do with the money.”
Mari-Anne Pirsarri told me the SEC has made additional clarifications (and a few exceptions) for multifamily office providers. For example, she says when a client calls up an advisor who is also a multifamily office provider and says, “Pay my taxes for $50,000,” that involves custody. However, if the client calls up the advisor and says, “Move my money from Schwab to Fidelity,” custody isn’t an issue.
She notes that there is so much confusion because, after awhile, the arguments start circling back on themselves. But the SEC means business, she says. “The SEC is not backing off on this one.”
Despite this, the SEC has made a few concessions. When the audits were first proposed last year, the SEC took the position that even deducting fees from client accounts represented custody. The SEC received over 1,000 letters and wound up agreeing that advisors who are simply authorized to collect their fees did not have true custody over their accounts.
Jerry Cooper, senior editor, The Trust Advisor Blog. Scott Martin contributed to the editing.
Permalink: http://thetrustadvisor.com/news/custody
Sleepy New Mexico Emerges as Important Trust Center
Posted by Scott Martin in News on March 5, 2010
Low start-up and operating costs attract trust companies, but state legislature is dragging its feet to support infrastructure.
UPDATE: Randy Hahn reminded us of First American Bank, which has been operating with trust powers under a federal charter since 1963. We’ve added it to the list.
If you’re a banker, RIA or trust officer ready to get out of the rat race, New Mexico may be the place to go to set up a pet project: starting your own trust company.
Capital requirements for new trust companies are low, only $150,000, and the operating environment couldn’t be better, as long as you’re not married to asset protection or perpetual trusts, don’t mind some taxes and don’t require the prestige of a Delaware or South Dakota.
One local player that’s grown well beyond the hobby level is Santa Fe Trust. With a half billion dollars in assets and an active directed trust model, the company has grown into a significant force since it got up and running in 1997.
Santa Fe CEO Kathy Roberts told me that the state presents companies like hers with a combination of a solid trust-friendly regulatory climate and fringe benefits.
“The operating environment in New Mexico is wonderful,” she explained. “And of course there are the normal positives: wonderful place, wonderful weather. Simply being where we are makes us appealing to both potential clients and their advisors who might be looking for an excuse to get some sun or hit the ski slopes.”
Compared to other Sun Belt states, New Mexico missed most of the real estate boom and so weathered the bust in relatively good shape. The unemployment rate in Santa Fe was 6.6% in December, well below the 8% to 13% that cities in Arizona and Nevada are suffering. Foreclosures are well below the national average, and only one of the state’s banks has failed during the credit crisis.
Labor costs are competitive. According to FDIC data, moving the average financial staffer from Nevada to New Mexico delivers a 2% savings on wages; the same move from Delaware would cut payroll costs 39%. (South Dakota’s still even cheaper.)
Prospective clients are a healthy blend of moneyed refugees from the big city, three- and four-home types who usually end up retiring in the area, and pockets of old money families, many of which have most of their wealth tied up in real estate and so can readily see the value proposition of moving that ranchland into trust and managing it effectively once it’s there.
Too Good to Be True?
A search of New Mexico’s Regulation & Licensing Department’s records reveals ten active trust companies in the state. Three are captive departments of local banks; the rest range from relative giants like Santa Fe Trust and Avalon Trust to niche IRA and escrow servicers.
That’s not bad for a state that didn’t make our list of most trust-friendly jurisdictions. In fact, only four of the states that scored higher (Delaware, Nevada, South Dakota and New Hampshire) have attracted a larger trust company presence, and some like Wyoming and top-tier Alaska have given out far fewer charters despite their reputation as trust havens.
On one hand, New Mexico has a few things going for it on the statute side: Directed trusts are authorized in statute and any company incorporated in the state can get a trust business going as long as it can meet the $150,000 capital requirement and post $100,000 for the bond and $500 for the application.
Support for directed trusts was enough for Santa Fe Trust and Taos-based Heritage Trust. By design, neither has an in-house investment specialist on the payroll. Both were set up with the goal of wooing wealth managers eager to hand off the administration of a client’s trust as long as they could go on managing the money in it.
However, tax treatment could be better. There’s no state inheritance tax, but residents do pay local income tax. “It’s a relatively minor thing, but beneficiaries who live in non-income-tax states still have to file a New Mexico tax return,” Roberts explains. “Whether they actually owe any money depends on the situation, but there are those out there who may get offended simply because the state makes them file in the first place.”
|
New Mexico Trust Companies |
Specialty |
City-Phone |
|
Trust & Investment Mgmt., Family Office |
Santa Fe |
|
|
Trust Management |
Clovis |
|
|
Wealth Management, Estate Planning |
Farmington |
|
|
Desert State Life Management Services |
Trust Management |
Albuquerque |
|
Trust Management |
Artesia |
|
|
Trust & Investment Mgmt., Family Office |
Taos |
|
|
Trust & Investment Mgmt., Family Office |
Santa Fe |
|
|
Self-Directed IRAs |
Albuquerque |
|
|
Trust Management |
Clovis |
|
|
Trust & Investment Mgmt., Family Office |
Carlsbad |
|
|
Trust Management |
Albuquerque |
|
|
Source: New Mexico Registration & Licensing Department and federal regulator websites. © 2010 TheTrustAdvisor.com |
||
On the column to your right, our research department compiled a list of 11 active trust companies in New Mexico; each name clicks through to the institution’s website. Please note that Desert State Life Management Services does not have a web site that we could locate.
Answering the Perpetual Question
Both Roberts and Heritage Trust founder Fred Winter acknowledge that because New Mexico still prohibits perpetual trusts, a company with a local charter can be a bit less flexible than a competitor from South Dakota or elsewhere in the same time zone (two hours behind New York).
Perpetual or “dynastic” trusts have become increasingly popular among families looking to shield their wealth not just for a single generation, but for centuries or even forever. In fact, Winter told me he has at least one client who’s thinking in dynastic terms. “It has actually come up in recent discussions,” he says. “They wouldn’t mind seeing our charter move.”
It probably won’t come to that. Kathy Roberts at Santa Fe Trust says that even if her clients were clamoring for perpetual trusts, it would take a lot to get her to move the charter. “We could always find a partnership with someone who can offer that kind of capability,” she told me.
Trust companies in the state can also wait for the rules to change. New Mexico lawmakers have argued several times to roll back the restriction on perpetual trusts, but so far nothing’s come of it.
Daniel Montoya, who works closely with Winter as secretary of Heritage Trust, says that the fact that so much of the state’s wealth is tied up in land is the sticky point here. The state’s lawyers just don’t want to see that real estate locked up for generations, he says.
“However, this year gives us a good opportunity to get things settled,” he told me. “I suspect something will happen.”
In the meantime, as long as a trust is located in a state that does allow perpetual trust or any other structure, New Mexico administrators will be happy to follow the rules.
Regulators Offer “Red Carpet” Treatment
Local land lobbies notwithstanding, every New Mexico trust officer I talked to loves the state’s regulators, especially Bill Verant, who runs the Financial Institutions Division, and Adrian Martinez, who has direct responsibility for trust companies in particular. “They’re both incredibly welcoming,” says Winter.
Kathy Roberts says that compared to life back in Wilmington, Santa Fe is “a very positive place to be” when it comes to getting things done. “It’s easy to talk to people,” she told me. “You can get in touch with the regulators or just call them up without any impediments—go to lunch. And the bankers’ association is what I would call proactive.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and editing.
Permalink: http://thetrustadvisor.com/news/nm
Are Directed Trusts Too Good to Be True?
Posted by Jerry Cooper in News on February 5, 2010
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.”
Two Approaches
In an influential 2007 white paper on the subject which may be downloaded, ”Directed Trusts: Can Directed Trustees Limit Their Liability?,” trust guru Richard Nenno, a managing director at Wilmington Trust Company of Delaware, divides the roughly 30 states that allow directed trust arrangements into two main groups. Most (including, according to the white paper, Florida and Wyoming) followed the approach laid down by Section 808(b) of the Uniform Trust Code.
In these states, trustees have to monitor what’s going on in the investment side and step in if the terms of the trust are in danger of being broken. This means the trustee’s potential liability still exists—in whole or in part—even though the work of managing the assets has been assigned to someone else. “Unless the governing instrument provides otherwise, a directed trustee must devote considerable resources” to the job, Nenno writes. In plainer terms, in these states, second-guessing the legacy money manager can be a grind.
However, other states, including Delaware, South Dakota and most of the Trust Advisor top tier, take what Nenno calls “a more protective approach” based on statutes that go beyond the UTC. In these states, trustees are held more-or-less blameless for anything that goes wrong in an area the trust grantor explicitly assigned someone else to handle.
Utah, for example, assigns directed investment advisors separate fiduciary responsibility; the trust company is almost completely off the hook for following the advisor’s investment calls except in cases of gross negligence or willful misconduct.
In these states, Jeff Lauterbach told The Trust Advisor, it’s cut and dried. “The trustee was directed to do something and the trustee did what he was supposed to do, he’s not liable. The advisor’s liable.”
“A Competitive Issue”
Whether a state has been content to go the UTC route or opted for more comprehensive directed trust rules can make or break its ability to support advisors cultivating directed trust arrangements. Joan Crain, a senior director at BNY Mellon Wealth Management in Fort Lauderdale, told Lawyers USA that it’s “a competitive issue” and that the 2007-era Florida rules didn’t go far enough to protect trustees.
“You still have the duty to oversee, to monitor, to intervene,” she said. “The directed trustee statutes in the few states that have strong ones are explicit as to the lack of responsibility on the part of the trustee for reviewing the actions of the investment manager.”
Even in relatively protected states like Delaware, where directed trust statutes go back to 1986, lawsuits still happen. Nenno’s own Wilmington Trust was a defendant in 2004 after the securities lawyer directed to oversee a trust’s assets sued the trust company for following his advice. The court found Wilmington blameless, noting that the investment advisor was happy to collect management fees and so was implicitly accepting the wages of failure.
As Leo Strine, the court chancellor who heard the case, summed up: “Had he wished for Wilmington Trust to be investment advisor to run a high-risk portfolio, I’m sure Wilmington Trust likes to make money. It would be willing to do it. It costs a lot more.”
Jerry Cooper, senior editor, The Trust Advisor Blog. Scott Martin and Steven Maimes contributed.
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