Posts Tagged douglas blattmachr
Surprise Kobe Bryant Divorce Could Cost Him $75 Million
Posted by Scott Martin in News on December 18, 2011
Lack of premarital planning gives Vanessa even more financial leverage, and the fact that he was the one caught cheating left her with all the cards. Half his fortune is forfeit.
Vanessa Bryant was legendary among basketball fans as the iron-willed Yoko Ono of the Los Angeles Lakers, complete with ICE QN vanity plates.
But Kobe was only 22 when he married her, and while he was already playing on a $70 million contract, he never got her to sign any kind of arrangement limiting her share of his wealth. Read the rest of this entry »
Trust Experts Say Judge Made “Bad Law” in Landmark Asset Protection Case
Posted by Scott Martin in News on October 29, 2011
Last week, trust gurus from every corner sounded loud sirens to register both discontent and caution over a recent federal bankruptcy decision that could shape the future use of domestic asset protection trusts.
Lawyers around the country have been heating up the Internet fretting over whether a seemingly routine bankruptcy hearing invalidates an entire class of trusts and could leave thousands of their wealthiest clients exposed to nuisance lawsuits.
After Alaska geologist Tom Mortensen filed for bankruptcy protection on about $250,000 in debt, the credit card companies came after his 1.25-acre vacation property in the vicinity of Anchorage.
In theory, that property was held in an Alaska trust, but the bankruptcy judge overruled state statute to let Mortensen’s creditors recover anyway. Read the rest of this entry »
Would the Actors Heirs Have Been Better Off With an Alaskan Will?
Posted by Scott Martin in News on June 26, 2010
Alaska’s new will testing statute allows for “death rehearsals” to give families a chance to correct mistakes before they happen. But some estate planners think the law is just a marketing gimmick.
If Gary Coleman or Dennis Hopper had been able to take advantage of the new Alaskan probate rules, local trust industry leaders say their estates might not be in turmoil today.
Starting in September, Alaska will become one of only a few states that allows for pre-mortem probate, which theoretically lets people resolve disputes around their wills before they die. (Read the new rule here.)
As a result, the state’s estate planners have gotten a lot of calls from non-residents looking to prevent the ugliness surrounding the Coleman and Hopper inheritance battles.
“We’ve gotten a lot of interest in this,” Douglas Blattmachr, CEO of Alaska Trust, told me. “I’m not sure how much we will get on the trust company side, but I think Alaska’s lawyers will get a lot of work out of it,” he added.
But while the lawyers in Anchorage may be generating a lot of out-of-state leads, it remains to be seen whether probate judges in the state where the death actually takes place will surrender their jurisdiction to the Alaskan process.
Settling the arguments in advance
In pre-mortem probate, residents and non-residents alike have the option of distributing their will to interested parties, who then have a limited amount of time to raise any legal objections.
If they fail to contest the will at this point, they forfeit the chance to do so later. Meanwhile, the person who wrote the will is still alive and available to clarify his or her wishes and mental competence in probate court.
Had Dennis Hopper gone this route, for example, he might have been able to argue personally that his estranged wife was not actually living with him, which would have technically broken her pre-nuptial agreement. His art collection would have gone to his children, and not to her.
And if Gary Coleman’s ex-wife or girlfriend wanted to contest his will with spurious or outdated paperwork of her own, the judge could have simply asked Coleman to point to which of the competing documents really represented his plans for his estate after his death.
The sticky point is that while out-of-state trusts have become a familiar part of the estate planning landscape, out-of-state wills are in more nebulous territory.
“I don’t think this would help Dennis Hopper or Gary Coleman,” Delaware probate attorney Peter Gordon of Gordon Fournaris & Mammarella told me. “Coleman is a classic example of a will that is going to be a nightmare because, among other things, a Utah judge sitting in a Utah court with a Utah resident is not going to send the case to Alaska.”
California resident Hopper would be similarly hard-pressed to get a California judge to hear his case early whether his will was drafted in Alaska or not. Unlike trusts, which are separate legal entities resident in the state where they are chartered, a will is simply a document that expresses the deceased person’s instructions about his or her estate, Gordon says.
In other words, in most cases, the will still needs to be probated where the person lived. While the Alaska rules are great for residents, estate planner Steve Oshins has deep reservations about how useful for accounts coming from out of state.
“I don’t see how an Alaska will would work for a non-resident given the jurisdictional issues involved,” he says. “An Alaska trust would have a better chance of success.”
Better for trusts
The Alaska rules extend to both wills and trusts. Someone can set up a trust in Alaska—a popular destination for wealthy individuals looking to take advantage of favorable laws—and distribute an estate plan for pre-mortem testing.
While states like Delaware do not allow pre-mortem probate for wills, this kind of testing has a longer track record where trusts are concerned. Peter Gordon says he’s personally made use of the trust testing rules several times since Delaware authorized them in 2003.
Wilmington Trust managing director Richard Nenno, known universally as “the font” of information on this topic, notes that if the assets are in trust, arguing about the terms of the will is a lot less likely to derail someone’s final wishes.
“The trust is where most people are putting their funds,” he told me. “Adding it for wills might help one or two situations in exceptionally dysfunctional families, but I don’t think it will be all that relevant in many high-end estate planning situations.”
As such, the new rules do two things for Alaska. First, they bring the trust code in line with other states by allowing pre-mortem testing—and this helps keep the state competitive on the national playing field.
Second, the will testing mechanism is great for state residents, but may not end up as much more than a marketing proposition for Alaska lawyers courting non-resident clients. Although North Dakota, Arkansas and Ohio also allow will testing, none are known as estate planning paradises.
The combination of will and trust may create some residual benefits for people coming to Alaska to get a trust anyway. Steve Oshins says an Alaska co-trustee may be able to work the local system successfully, although he is not convinced that this would do non-residents much good.
As it happens, Alaska Trust could get some add-on business from this, Douglas Blattmachr told me. “We might get appointed as trustees a bit more often,” he says. “A lot of clients are interested in trusts and worried about will contests. This gets those worries out of the way.”
Scott Martin, contributing editor, The Trust Advisor Blog, Jerry Cooper contributed to the reporting, Steven Maimes contributed to the research and editing.
Permalink: http://thetrustadvisor.com/news/premortem
Feds Order Trust Firms to “Unbundle” Fees
Posted by Scott Martin in News on May 8, 2010
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 trustee fees in one bill. As a result of this famous case, trust firms in the US are now getting ready to comply with an IRS directive requiring trustee and IM fees to be billed separately for a taxpayer to gain a deduction.
A decade ago, Michael Knight was under the impression that investment management fees for trusts were fully deductible. After all, hiring the best possible advice was part of his fiduciary duty as trustee for a $2.8 million Pepperidge Farm family trust.
He was surprised when the IRS bounced most of the deduction back, leaving the trust with a $4,000 tax bill and gnawing questions about how to account for pure trust expenses (which are fully deductible) versus investment expenses going forward. He took the case all the way to the Supreme Court, only to lose in 2008.
The Supreme Court ordered trustees to split or “unbundle” pure trust expenses from everything else if they want to make sure their accounts get all the deductions they deserve. Two years later, Knight and everyone else in the trust business is still trying to figure out how to obey that order as the IRS delays issuing firm guidance on more than a year-to-year basis.
“You know they just extended the review process again a few weeks ago,” Knight told me. “That means they’ve deferred yet again on making a decision on unbundling. At this point, I wonder if I lost the battle only to win the war,” he added.
“A real pain”
If and when the IRS makes up its mind, trust companies that currently don’t break out their expenses are looking at headaches ahead.
“The Supreme Court ruled in their favor, but I agree that if that’s what’s going to happen, it’s going to be a real pain,” Douglas Blattmachr of Alaska Trust told me.
Other trust companies are steeled for what they see as inevitable. Reno-based Dunham Trust has the accounting systems in place to unbundle its fees as soon as the government tells it to push the button, Tommy Tucker, the company’s president, told me.
“When I checked into it, my operational people said we’re ready to go,” he says.
In fact, there are software fixes out there, says Les Revzon, president of Advisors Institutional, a firm that helps trust companies form in South Dakota and provides back office support for about a dozen trust company clients.
“Most trust accounting systems like SEI, Sungard, Infovisa and HWA can easily break fees down any way the trust company wants,” he says.
While the technology may not be a hurdle, figuring out where to assign every basis point of a previously unified fee may cause some consternation. Firms like Alaska Trust simply charge one all-in fee based on assets and service level, and so, Blattmachr tells me, they’re still working on what an itemized fee breakdown would look like.
Even asking trust companies to do this is pointless, as far as Texas lawyer Carol Cantrell, who argued Knight’s case against the IRS, is concerned.
“I am not sure it can even be done,” she told me. “It would be like asking a real estate broker to unbundle his real estate commission among the various duties he performed,” she added, noting the complexity of all the unique variables involved.
“No two trusts are alike”
Cantrell points to another serious issue: What happens when trust companies disagree in how they split up the basis points, even as far as trusts administered by the same company are concerned?
On the one hand, every trust and every trust company is different, but ultimately the line-item approach will force fee allocations to converge throughout the industry, Cantrell says. That could lead to a competitive race to the bottom, but it’s not likely to happen any time soon.
As things currently stand, there’s no need to unbundle unless the IRS mandates it. The Supreme Court’s issue was not so much with fee transparency but with whether bundled fees are fully deductible. Theoretically, any trust officer could simply charge a wrap fee and accept potentially less favorable tax treatment.
In the meantime, Dunham Trust, for example, is still treating all of its fees—trust and investment management alike—as deductible. However, Tommy Tucker has talked to colleagues who are being told to unbundle and not write off a cent of their investment fees.
Michael Knight originally argued that making sure his accounts were invested in the best possible way was part of his fiduciary duty, and so investment management necessarily qualifies as a fiducuary expense. It’s a great point, and there are efforts in Congress to change the law to accommodate it.
Whether that happens this year is anybody’s guess, given Washington’s distracted and fractious mood. Nobody I talked to expects anything to shake out before the November elections, and even when it does, there could probably be a long wait before new rules go into effect.
As for Knight, he told me he’s really just scratching his head when it comes to the Supreme Court decision.
“The lack of focus on the fiduciary relationship was disconcerting to me,” he says. “Some of these judges have been in private practice. I guess they didn’t do a lot of trustee work.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/unbundling
Who’s Charging What for Trust Services?
Posted by Scott Martin in News on April 3, 2010
Trust fees are headed higher according to our pricing survey completed this week. Some firms work strictly from a rate card. Others decide what your client will pay when the business is placed on the table. Either way, it’s good to know what the “market value” of trust services.
There’s still a fair amount of mystery surrounding exactly what’s baked into each of those basis points.
“It’s never as simple as just lining up the fees,” says Mike Flinn, a Phoenix-based trust consultant at Advisory Trust Company. “Once you start drilling down into the basis points, it becomes pretty clear that different firms really do different things,” he added.
To find out where the sizzle hits the steak for various types of trust company, The Trust Advisor Blog conducted a survey below of what they’re charging.
|
Who’s Charging What for Trust Services |
|||||||
|
Trust Company |
State |
Trust account minimum |
Minimum annual fee |
First $1 million |
Next $2 to $3 million |
$3 to $5 million |
Above $5 million |
|
|
DE |
$500,000 |
$3,000 |
0.50% |
0.40% |
0.30% |
0.25% |
|
|
DE |
$1 million |
$6,000 |
0.60% |
* |
0.45% |
Neg. |
|
|
NH |
None |
$3,000 |
0.90% |
0.55% |
0.45% |
0.35% |
|
|
IL & |
$5 million |
$20,000 |
0.40% |
0.40% |
0.40% |
0.20% |
|
|
GA |
None |
$3,000 |
0.60% |
0.35% |
0.35% |
0.35% |
|
|
NM |
None |
$4,000 |
0.75% |
0.75% |
0.50% |
0.35% |
|
|
NV |
None |
$1,000 |
0.50% |
0.50% |
0.50% |
0.40% |
|
|
NV |
$100 |
$100 |
1.00% |
0.80% |
0.70% |
Neg. |
|
|
SD |
None |
$4,000 |
0.50% |
0.50% |
0.42% |
0.35% |
|
|
DE |
$1 million |
$8,000 |
0.60% |
0.40% |
0.40% |
0.25% |
|
* Breakpoint is $2 million. NOTE:Accuracy is not guaranteed. Please consult the institution directly to confirm costs. The Trust Advisor Blog realizes that this is not a comprehensive list of all firms. To make sure your institution is included or excluded in the July 2nd edition of this survey please let us know. We will be expanding coverage; please also include any other services offered such as investment management, special purpose trusts, HSAs, etc. Advisors and estate planners may reproduce this survey upon request. To contact us, click here. |
|||||||
|
Source: Websites and telephone interviews. ©2010 TheTrustAdvisor.com |
|||||||
The Basic Account
One thing we discovered: if you just want a no-frills account, Flinn adds, it’s probably going to cost at least $3,000 a year. “That’s really the minimum anyone can comfortably charge.”
“Maybe $2,500,” he conceded. “But at that level, it’s going to be very difficult to stay in the business.”
While $3,000 happens to be what Advisory Trust charges on the low end, it does seem to be an informal sweet spot within the trust industry. Other companies that start at that level include New Hampshire Trust and Georgia-based Reliance Trust.
There are companies that charge small accounts less (Nevada’s Summit Trust will go as low as $100 a year), but plenty start their fees at $4,000 and up. It all depends on the size of account they’re courting and what makes economic sense, Christopher Holtby, president of Wealth Advisors Trust Company, told me.
“Hitting the sweet spot is part art, part science,” he explains. “There are very specific things that every trust has to do, and everything else is extra.”
Good scale for big fish
Northern Trust doesn’t publish its fee scale, but president Dan Lindley was kind enough to give The Trust Advisor a peek.
Although the $20,000 minimum fee looks steep at first, it makes a lot more sense when you consider that Northern Trust isn’t really interested in personal directed trust accounts with less than $5 million in assets. For a client with that kind of wealth, the $20,000 translates into at most 40 basis points a year—pretty low by industry standards.
(Really big clients get institutional-strength discounts. Once a Northern Trust account grows beyond $30 million, the company will only charge 5 basis points: $500 a year per $1 million.)
The upshot is that by concentrating on high-end clients, a white-glove firm like Northern Trust can build a lot of sizzle into its steak, even though the cost per dollar of AUM is comparable to what bare-bones vendors charge.
“Northern Trust in Delaware charges a reasonable, competitive fee and in return provides comprehensive services to our directed trust clients backed by more than 120 years of experience as a fiduciary,” Lindley told me.
Other high-end trust companies argue that at this level, it’s pointless to advertise your fees because high-net-worth clients and their advisors are happy to pay for the service.
Some vendors refused to participate in the survey because they either work on an a la carte basis (Alaska Trust) or figure out what to charge once they see the trust paperwork (Commonwealth Trust). As Alaska Trust founder Douglas Blattmachr told me, it’s pointless to advertise how much a generic offering would cost when the fact is that at this level, one size fits none.
“It really does depend on what the client wants us to provide,” he says.
When asked to present a benchmark, he estimated that a relatively bare-bones Alaska Trust account might charge 50 basis points a year or an annual minimum of $3,500. That’s about where vanilla Commonwealth trusts start, Jim McMackin, who runs the company’s marketing, told me.
Splitting smaller pies
Naturally, it’s going to cost extra if the trust company also manages the underlying assets. But there are a lot of vendors out there that are happy to offload the investment responsibilities and knock a bit off their fees in return.
Companies like Wealth Advisors Trust, Advisory Trust and Santa Fe Trust, cater exclusively to investment advisors looking for a place to refer their clients who need to open a trust.
Account minimums tend to be relatively low—Wealth Advisors Trust and Santa Fe Trust can theoretically start a trust with as little as $1—but expenses can be a little higher to cover the fixed cost of administering these tiny trusts.
For example, Santa Fe Trust accepts very small accounts, but according to its published fee scale it will still charge them at least $4,000 a year. At an annual fee of 75 basis points, this suggests that a trust really needs to have more than around $533,000 in it to “earn out” that $4,000 minimum fee.
By comparison, Wealth Advisors Trust’s scale “earns out” at a slightly higher level ($800,000 in the account), which indicates that its platform is built to support a somewhat more affluent clientele. Others on our list (Advisory Trust, Reliance, Saturna, New Hampshire Trust) justify their minimums at lower levels.
Whatever happens, says Kathy Roberts, the CEO of Santa Fe Trust, small accounts shouldn’t be loss leaders.
“We don’t take a trust that isn’t going to be profitable,” she told me. While she’ll take on a tiny trust if the grantor insists, she warns that advisors should recognize that the trust company will pass on the cost of running it and sometimes it just doesn’t make sense.
Where we go from here
Most of the people I talked to say the cost of running a trust has already gone about as low as it can go.
Mike Flinn from Advisory Trust and Douglas Blattmachr of Alaska Trust agree that the cost of fiduciary compliance and routine service probably isn’t going any lower than around $3,000 per trust any time soon, especially given the current trend toward higher regulation.
“It’s expensive to be a fiduciary,” Blattmachr acknowledged in our conversation. “So that provides a floor on what people can offer.”
But beyond that level, technology keeps improving and letting efficient trust companies bring down their overall cost proposition. Blattmachr says low-end players can use technology to better serve the mass market. Kathy Roberts of Santa Fe Trust agrees.
Either way, Christopher Holtby of Wealth Advisors Trust told me that there’s always room for enthusiastic competitors.
“Wherever fees go,” he says, “there are going to be a lot more entrants in the trust service business.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and the editing.
Permalink: http://thetrustadvisor.com/news/fees
Do You Own an Apple iPad?
The Trust Advisor will be publishing an upcoming article on wealth management applications for the new Apple iPad device.
I have seen the device and its amazing. Forbes reported that Apple sold between 600,000 and 700,000 iPads today alone.
We would like to include any comments our readers have about their experience with the device, either good or bad and what applications they may be using.
Click this link to submit your iPad comments
Thank you — Jerry Cooper, Sr. Editor, the Trust Advisor
Would an Asset Protection Trust Work for Tiger Woods?
Posted by Scott Martin in News on February 19, 2010
Alaska practitioner claims asset protection trusts are good advice in marital disputes. But others disagree.
If Tiger Woods is lucky, coming clean about all those affairs will help him salvage his marriage. But if he and Elin split up anyway, apologizing might at least have earned him some time to shelter his hard-won $600 million fortune from the divorce court.
Estate lawyer David Shaftel of Anchorage, Alaska says that even people who’ve been married for years can set up an asset protection trust. “We can do them after the marriage,” he told The Trust Advisor.
Community property laws can raise questions about trusts funded with marital assets without spousal consent, Shaftel says, but since Tiger lives in Florida, a non-community property state, there’s no problem. He doesn’t need his wife’s consent to fund the trust, and his wife’s lawyers would have a hard time touching his assets as long as he keeps enough cash on hand to meet the terms of the prenuptial agreement.
Once the assets are in the trust, he no longer has the keys to the safe and can tell the court that he doesn’t have access to the money. If she divorces him and can get what he’s already promised to settle on her, he’s home free. The asset protection trust did its job.
Needless to say, the public probably wouldn’t like the idea of him shielding his assets from the court using the trust. Personal finance gurus like Jean Chatzky—who loves prenuptial agreements for being less “cold-blooded”—bristle at the notion.
“When they’re used in that way, I find trusts sneaky and underhanded,” one Chatzky column warned Money readers. “A well-executed prenup or post-nup will do the same thing.”
Before the Honeymoon Even Starts
For better or worse, Tiger’s original prenup reportedly gave Elin $20 million if she stayed with him through 2014; rumor has it he’s since sweetened the deal substantially to keep her from walking out. Estate lawyers around the country say their clients who don’t want to follow in his footsteps are showing a lot of interest in asset protection trusts before walking down the aisle.
“I’ve probably set up as many asset protection trusts as I have prenuptial agreements since we had the trust option,” Bryan Howard, a founding partner of Nashville, Tennessee estate planning firm Howard & Mobley PLLC, told The Trust Advisor.
“More than half of the 20-somethings don’t do prenuptial agreements any more. Protecting these assets is just not something that occurs to young kids. But it definitely occurs to their wealthy parents.”
In fact, Howard says his clients are so enthusiastic about these trusts that they’re setting them up for the kids before that special someone is even in the picture. Unlike a traditional prenup, which requires a bride or groom to sign the papers, an asset management trust can be created early on and then filed away; even if the kids elope, the assets are safe.
This sort of preemptive divorce protection works well for Shaftel too. Since so many couples prefer not to talk about the money, getting the transaction out of the way before they’re even a couple keeps it from getting bogged down in personal issues or questions of marital consent.
Opinions vary as to whether couples need both a prenup and a trust. Howard has a belt and suspenders philosophy and recommends both types of paperwork for his clients if possible. He argues that a prenup provides a useful structure for discussions about alimony—Tennessee trusts are vulnerable if payments are delinquent—and wealth that the couple may acquire during marriage.
Alaska, Nevada and Beyond
If Tiger’s lawyers decide he needs a trust, where should they go? In most asset protection states, spouses are “exempted creditors,” which means that they can get around the protection that trusts normally provide. But in Alaska and Nevada, an ex-spouse is considered just another creditor, says Douglas Blattmachr, founder of the Alaska Trust Company.
“We’re one of the only states that I’m aware of that doesn’t have that special class of creditor,” he told me. “In Delaware, there’s a whole string of creditors that can get the assets. Same with South Dakota.”
It’s a relatively minor difference, but one that still drives some out-of-state trust traffic to Alaska, says Blattmachr, who knows the state’s statutes better than most. His brother drafted the law that opened the state up to independent trust companies in the first place.
Alaska offers confidence when it comes to estate tax treatment. As of July 15, the IRS resolved a gray area in the tax code by confirming that the state’s self-settled spendthrift trusts—the formal name for these vehicles—are in fact exempt from estate tax even though the grantor can still draw on them as needed.
Both Blattmachr and Anchorage attorney David Shaftel agree that this “sweet spot” between favorable tax treatment and accessibility in an emergency helps to create a lot of interest in Alaska-based trust structures.
“It’s become almost a default technique here,” Shaftel told me. “People are much more comfortable gifting or selling assets to the irrevocable trust if they can enjoy the psychological security of knowing they can draw on these assets if they need them.”
“Hell No!”
Another, often overlooked benefit of the trust environment in states like Alaska and Nevada where divorce planning is concerned: These trusts protect the family’s assets not just for the current generation, but for centuries. In other words, even if the kids or grandkids make a terrible match, the trust remains secure.
“In the estate planning field, the creditor the older generation is most concerned about is the ex-spouse if a child gets divorced,” Shaftel said. “Is that inheritance going to be divorced and given to the ex? That’s a very high driver of interest.”
Blattmachr sees this too. “That one-in-two chance that a couple will get divorced applies to future generations as well. Do you want your ex-son-in-law to get your assets? Whenever I ask a couple that, they say ‘Hell no!’ Whatever happens with the estate tax, that ‘Hell no’ will be with us always.”
Tiger’s kids aren’t old enough to worry about, but with $600 million on the line, it’s a good bet the family lawyers are at least thinking that far ahead.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and editing.
Permalink: http://thetrustadvisor.com/news/would-an-asset-protection-trust-work-for-tiger-woods
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