Posts Tagged Nevada
Oshins: Nevada Rated Top Asset Protection State for 2012
Posted by The Trust Advisor in Headlines on January 14, 2012
Nationally known estate planning and asset protection attorney Steve Oshins published his updated chart on best asset protection states.
He recently did a mid-year update to reflect some significant changes made by some of the ranked states.
The Nevada Trust Reporter reported his findings.
New Nevada Legislation Strengthens its Asset Protection Laws
Posted by Steven Maimes in News on June 11, 2011
The competition among states is heating up as the different jurisdictions continue to modify their laws to make them more competitive.
Asset protection is a growing area of concern for many people, especially in a sour economic environment where lawsuits multiply.
Alaska and Delaware became the first states to allow specialized asset protection trusts — designed to protect the underlying property from creditor claims — in 1997. Nevada and Rhode Island soon followed, and now there are now 13 states that allow people to set up asset protection trusts.
But while the field has expanded, Nevada has remained at the forefront in making sure to continue to improve its laws.
On June 4, the governor of Nevada signed into law Senate Bill 221which significantly enhances the state’s already cutting-edge asset protection trust statutes.
Nevada’s Banking Regulator Tells Lawmakers Tough Laws More Important than More Business
Posted by Scott Martin in News on March 26, 2011
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 closure of more institutions than any time in recent memory.
You would think all this tough regulation would be good for the state. But nothing Burns has accomplished has helped bring in new investors from other states and abroad, create jobs, boost home prices or restore Nevada’s soiled banking reputation.
As a matter of fact, experts say, he’s made matters worse because his red-tape regulation has sent new banking and trust business to other states.
After years of watching the Nevada trust industry shrink despite some of the best fiduciary statutes around, state lawmakers are now considering a bill that would stop Burns from his binge of “regulations gone wild.”
In an effort to slow Burns down from promoting new rules, Nevada Senate Bill 198 was introduced last week before the Nevada legislature. It is a straightforward attempt to restore the competitive advantages that once enticed out-of-state trust companies to come to the Silver State.
Sponsored by Senator Michael Roberson, the proposal fine-tunes the application process, clarifies the interstate branching rules and aims to eliminate the requirement that forces trust companies to set aside at least $500,000 of their reserves in cash.
However, while Burns is officially lukewarm on most of the bill’s provisions, he draws a line at loosening the cash requirement — apparently because if a trust company fails, selling off its stocks and bonds would be be too much trouble.
“Readily available cash to fund the costs of receivership is essential because the ability of the state or receiver to liquidate securities portfolios is cumbersome and protracted,” he testified in a recent Nevada state hearing.
How much cash does the “king” need?
By his estimates, it takes at least $500,000 to $1 million to wind down a failed trust company’s affairs, so it makes sense that every Nevada-chartered vendor keep that much capital on hand in the event of disaster.
But in a world where elite family offices and other entities looking to set up trust companies can pick and choose where they want to do business, this actually seems a little too “prudent.”
Nominally “conservative” states like New Hampshire — which actually disparage the Nevada rules as too loose to protect consumers — are fine with trust companies investing their entire reserve in marketable securities and earning a decent return on their capital.
Back when Nevada only insisted on $300,000 from trust companies — exactly what the regs want from start-up depositary banks, incidentally — the net opportunity cost of sinking $150,000 into near-zero-yielding Treasury bills was relatively small.
After the state tightened the rules in 2009, potential entrants are finding it easier to go to South Dakota, which only mandates $200,000 in cash.
“Now that the minimum capital has increased to $1 million, it is impractical for companies to maintain half their equity in cash,” Las Vegas trust attorney Matthew Saltzman tells me.
When pressed in the hearing, Burns conceded that he’s not really married to the $500,000 cash minimum. He just wants Nevada-chartered trust companies to keep as much cash as possible to ease the “cumbersome” task of liquidating the portfolio in a worst-case 2008-level scenario.
And while cash may be king, he’s also been quoted as defending troubled Nevada banks on the grounds that numbers are “not the entire picture.”
At the time, he said regulators need to consider “qualitative factors” like management, business plan and active oversight — which would arguably mean the character of a would-be trust company operator is the kingmaker.
Return to the Delaware of the West
As it is, Nevada under Burns’ watch has seen the number of trust companies licensed to do business drop significantly while the roster in South Dakota has practically doubled.
Insiders tell me they suspect there hasn’t even been an application for a Nevada charter in years, which has cost the state a bit of revenue in lost fees.
Although trust companies don’t employ hordes of people, every white-collar job that Nevada can lure to the state — where unemployment only recently dipped below 14%, compared to South Dakota’s 4% — counts a lot to lawmakers and the people who vote for them.
State Senator Michael Schneider, who chairs the committee reviewing the bill, noted in the hearing that it’s desirable that Nevada strive to regain its mantle as the “Delaware of the West,” Saltzman says.
Of course, there are issues of public safety to uphold. Burns’ testimony brought up the unfortunate case of Enterprise Trust Company, which had a Nevada charter but only a token physical presence in the state.
Shortly after the SEC filed a formal complaint on behalf of the company’s Illinois clients, the Nevada FID’s own investigations forced it to shut Enterprise down in a hurry.
With only $300,000 in regulatory capital, Burns estimates that Enterprise clients lost $48 million. Under the new rules, of course, they would have still lost over $47 million, so the real burden is always going to be on the backs of the regulators, not the regulatory capital.
In that light, it’s admirable that, as Burns says, “gone now are the past days of anyone with a little capital coming to Nevada, easily securing a trust license, hanging it in a resident agent’s office, and heading off somewhere else.”
But as David Dunn — longtime Las Vegas resident and CEO of South Dakota-chartered Kingsbridge Trust — can attest, it’s a fine balancing act between making it tough for the shady operators and making it too tough for the legitimate vendors.
Dunn was probably one of the last people to consider a Nevada trust charter, but as the new rules were set in motion, he choose South Dakota instead.
Dunn asked Burns at the hearing, “Where were your examiners before Enterprise failed?” Burns never replied.
Burns is facing background noise about whether he has enough of the new governor’s confidence to stay on as commissioner.
Since taking office in January, Governor Brian Sandoval has fired two agency chiefs, the heads of Nevada’s Tax and Mortgage divisions: one for incompetence, the other for being a political liability. Questions remain whether Burns will be the third to go.
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the editing and research.
Permalink: http://thetrustadvisor.com/news/sb198
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 |
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|
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
Nevada Banking Regulator Proposes Tighter Rules for Trust Firms – Update
Posted by Scott Martin in News on October 31, 2010
After sweeping “loophole closing” overhaul last year, banking chief proposes more “business unfriendly” rules designed, experts say, to thwart newcomers and choke local firms with costly compliance.
BREAKING NEWS – November 3rd – 5:00 pm
The Trust Advisor Blog has been notified that the full regulatory hearing scheduled for Thursday, November 4th has been cancelled due to lack of advance notice to Nevada’s trust firms.
George E. Burns and his banking agency, the Nevada Financial Institutions Division, intend to strike trust firms once again with new rules that go beyond federal trust requirements.
Only a year after Nevada’s legislature effectively took away the low capital entry rules for trust companies looking to do business in the state — which we reported here — the FID is gearing up to tighten the rules even further.
On the surface, NAC 669 – which just passed its workshop October 21 and is now slated for a full regulatory hearing on Thursday, November 4 — reads like a fairly straightforward clean-up of some of the points that last year’s rules left vague . . . and then some.
The distinction between “retail” and “family” trust companies gets pinned down, and so do the requirements for creating a branch office out of state.
However, even the clarifications are making local FID watchers scratch their heads.
I spoke to officials from several Nevada trust companies, but no one would go on the record for fear of retaliation. But outspoken Matthew Saltzman, an attorney at Las Vegas law firm Kolesar & Leatham, gave us plenty to talk about.
“They accomplished the dramatic stuff with the legislation enacted in the last session, so this seems to be more in the line of housekeeping,” says Saltzman.
“But some of the new rules are troubling and perhaps legally problematic,” he adds.
Shoot first, ask questions later
One of the issues that worries Saltzman is that under NAC 669, the FID can shut down a state-licensed trust company immediately and unilaterally if it suspects something goes wrong — but there’s no firm timetable for letting the trust company defend itself.
If the new rule passes, trust officers served with a cease and desist order have the right to ask for a hearing, but Saltzman notes that there’s nothing specifying when that hearing will happen.
“It could be months,” he explains. “And in the meantime, your business is shut down. This is a fundamental denial of rights to due process.”
The fact is, mistakes happen. The FID made headlines early last year by slapping a cease and desist order on celebrity Las Vegas pawnbroker ‘Pawnstar” Rick Harrison for looking like an unlicensed lender, only to withdraw the order when it turned out he wasn’t technically lending money after all.
But, Saltzman adds, unless there’s a system in place for catching mistakes like that fast, a trust company that’s unfairly accused could bleed to death before clearing its name.
NAC 669 also mandates that trust companies seeking an opinion from the FID have to pay its legal costs plus $1,000. Insiders warn that this only makes it more expensive for people who need to deal with the regulator, while discouraging everyone else.
“This appears to be a way for the FID to cover themselves while making things more difficult for the public to do business with them,” says a veteran of the process who talked to The Trust Advisor on condition of anonymity.
Doesn’t like phone calls from other regulators
Officials from one trust company told the Trust Advisor that Burns kept getting phone calls from a [unnamed] banking regulator in a southern U.S. state. The regulator complained that this Nevada trust company was operating in his state without supervision.
Each time the Nevada FID examined the firm, it found it 100% in compliance.
But to squelch the phone calls, the Nevada FID is proposing a provision to the regulations that would require the firm to obtain a trust license in the southern state with a huge regulatory capital burden, thus effectively exiting Nevada in the process making the supervison of the trust firm the complaining regulators problem.
Kangaroo Court?
The proposed regs also make would-be trust companies who get their application for a Nevada license denied appeal their case back to the commissioner who denied the application in the first place.
“That doesn’t appear to make much sense and probably wastes everyone’s time,” Saltzman says.
In theory, the commissioner could simply replace himself in an appeal or other application hearing. But in practice, unless the applicant had something new to put on the table, it looks like NAC 669 means the first decision is final.
This raises questions of potential conflicts of interest down the road and may even be unconstitutional, Saltzman says.
“We may have a great commissioner now, but we don’t know who the commissioners will be in the future,” he explains. “We don’t want to have laws and rules that depend on the unchecked judgment of a single person. You have to make them work forever, no matter who’s in charge.”
There are mixed views on the Burns administration. Industry observers say that Commissioner Burns promoted reforms to deal with allegations of wrongdoing by several Nevada trust companies in 2008. The view, at the time when SB-310 was introduced he did not want to see Nevada become a “Tijuana of Trust Companies” where trust companies establish themselves under Nevada’s relatively low capital requirements and then operate in other states. Saltzman’s firm represented many Nevada trust companies, including several that have been the subject of the regulators compliance actions.
Burns may be out soon
Another confidential source tells us that if Brian Sandoval wins the gubernatorial election on Tuesday, November 2nd, as expected, the current FID commissioner may be replaced in any event.
He added, “We have compelling evidence that Burns issued bogus C&D orders that FID wound up recinding and wasted agency resources with baseless fishing expeditions.”
The campaign to “modernize” the then-booming Nevada trust industry only choked off applications from firms looking to do business in the state — leading one of the oldest Nevada trust companies to abandon its charter — and there are calls for a more business-friendly hand on the wheel.
Encouraging trust companies has translated into plenty of jobs and revenue for South Dakota, for example, and over the last year, locals from Reno to Henderson have told The Trust Advisor they’d love their state’s favorable statutes to open up similar opportunities for Nevadans.
Saltzman concluded that unless there is a change, newcomers seeking trust charters are likely to continue to launch somewhere else.
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steven Maimes contributed to the research and reporting.
Permalink: http://thetrustadvisor.com/news/fid
How Provident Trust of Nevada Went from Zero to $750 Million in 24 Months
Posted by Scott Martin in News on September 6, 2010
Founder Theresa Fette’s marketing machine seems to be generating income faster than the federal government can spend money. Her institution’s rags-to-riches story will inspire big and small trust firms alike.
Three years ago, tax lawyer and entrepreneur Theresa Fette was not expecting to become the CEO of one of the most successful trust firms in Nevada.
Today, she’s running Las Vegas-based Provident Trust Group, which has evolved into a $750 million trust company. The average trust account is in the $50 million range, the company is inking huge 1031 exchange deals and high-end lawyers from around the country keep calling in to place assets.
All of this comes from an opportunity that fell into place two years ago when Trust Company of the Pacific (TCP) lost its trust license after getting on the wrong side of the Nevada banking regulator.
When TCP’s owner P. Sterling Kerr, a prominent Las Vegas attorney, saw the writing on the wall, he contacted Fette and made a deal to sell all 7,000 of his company’s now-refugee accounts—crown jewels valued at nearly $300 million—to her group.
The problem was that Fette had no immediate home for the accounts. As a tax lawyer, she could not just pull a trust charter out of her hat, but after lining up a holding company and support from the Nevada banking regulator, within a few months Provident Trust was up and running.
With some of the best and the brightest people in the industry on her team and 7,000 accounts already in place, there was no question the day the operation opened its doors, it was pulling a handsome profit.
Today, Fette is not too shy about discussing the enormous success her trust firm has experienced after that jump start. Having more than doubled its assets under administration, Provident has also expanded its trust product offering to include retirement accounts, alternative assets and the highly sought-after Nevada asset protection trusts.
The Trust Advisor Blog asked Steve Oshins, one of Nevada’s best-known estate planning attorneys, if he had ever heard of Fette and Provident. He said no.
“In a small community of Las Vegas, you’d think we’d know each other, considering that we’re both in the same industry,” he says. “But she’s obviously smart because she contacted you to gain attention for her trust firm’s success story.”
Networking is key
Provident has kept a fairly low profile because just keeping up with word of mouth has kept the team busy.
“There really hasn’t been any advertising,” Fette says. “We network with members of the legal and financial advisory community and that’s our biggest source of referrals.”
One big plus with the advisors: As a strictly directed trust operation, Provident Trust doesn’t offer in-house wealth management services, so there’s no worry that it will try to poach client assets.
“We see all the trouble come when people try to dip their hands in too many buckets,” she says. “And how truly independent can a trustee be if you’re also managing money?”
Good point! And for many trust firms wrestling with conflicts of interest and unbundling trust fees to comply with Knight vs Commissioner, she might be right on the money.
Speaking of networking, Fette is one of the younger members of the trust community. A few months ago, the M&A Advisor Network flew her to Los Angeles for a black tie gala to honor her and other under-40 movers and shakers in the advisory world.
Flat fee for small accounts
We found one aspect of Provident’s business model especially intriguing. Under their self-directed IRA banner, they take relatively small-sized accounts ranging from $50,000 to $100,000.
This is not the norm for most trust firms, which tend to prospect for accounts north of $5 million. Provident’s key to success is charging these relatively low-maintenance IRA customers a flat $395 a year for providing custody service no matter how much—or how little—money is in the account.
Naturally, for a $50 million dynasty trust, $395 per year wouldn’t work, but Provident’s normal basis point billing structure ensures that taking care of those larger accounts remains a profitable enterprise.
When you work the math out, 8,000 accounts times $395 means you’re billing over $3 million a year. And in a world where retirement accounts are relatively dormant most of the time, both risk and turnover are comparatively low.
With ideas like that, coupled with the team’s stellar reputation, it’s clear that Provident will be well over $1 billion in assets shortly.
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steven Maimes contributed to the research and reporting.
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Nevada’s Oldest Trust Company Calls it Quits After 107 Years in Business
Posted by Scott Martin in News on July 31, 2010
Exclusive
Experts blame regulator and over-burdensome rules for closure and zero growth since enactment of higher capital requirements. Complying with Nevada’s residency requirement rules worries most local firms with sizable non-Nevada business. New players continue to find better alternatives from other states.
Reno based Nevada Agency and Trust Company had been doing business since 1903, but Andrea Cardinalli, the company’s president, decided to abandon its state trust charter earlier this year.
“We did let it expire,” she confirms. “And we’ve changed our name to reflect that.”
Now known as Nevada Agency and Transfer, Reno-based NATCO is not aggressively pursuing another charter from any other state or federal agency.
Cardinalli wasn’t eager to talk about operating conditions for retail trust companies in Nevada, but the state’s decision to tighten the rules late last year probably made it easier for NATCO to cut the 100-year cord.
“There is the distinct possibility that the Financial Institutions Division is causing the lowest-capitalized trust companies to leave,” says Matthew Saltzman, a banking attorney at Las Vegas law firm Kolesar & Leatham.
“Some might not be able to comply with the new requirements,” he added. “Others may just not want to do so.”
Not enough incentives 
NATCO was not a prominent player in the Nevada trust landscape. Neither Saltzman nor Nevada Trust president Peter Kingman was familiar with the company, which has moved away from trust services over the decades to focus on the stock transfer and registrar business.
Although most institutions that engage in these activities have traditionally been banks or independent trust companies, you don’t actually need a trust charter to do so.
In fact, because NATCO isn’t a bank, it needed to register with the SEC and comply with federal securities industry rules whether it kept its state charter or not.
However, Nevada’s stricter rules made it more expensive to keep that charter. Even though NATCO was grandfathered into the new capital requirements, it still would have had to commit an extra $200,000 by October 1 and another $250,000 a year for the next two years.
It also needed to meet various customer residency tests to prove that it was primarily doing business with Nevada clients.
Because most Nevada trust companies serve a primarily out-of-state client base, this rule looks especially onerous to L. Scott Walshaw, the state’s former banking commissioner.
“I don’t think it’s enforceable,” he says. “Someone ought to take the regulator to court on this one. But in the meantime, it only encourages trust companies to leave the state.”
The canary meets the coalmine
NATCO’s quiet exit brings the number of public trust companies operating in Nevada its lowest level in over a year, and Matthew Saltzman agrees with Walshaw: more departures are on the horizon.
“As the state goes from an attractive low-cost jurisdiction to a more expensive one, marginal players may be more likely to relocate to South Dakota or wherever the hot jurisdiction is right now,” he says.
While client privilege prevented him from telling me who it is, he says at least one more trust company is planning on abandoning its Nevada charter in order to become a more loosely regulated family trust company instead.
Chicago financial institutions lawyer John P.C. Duncan warned of such a flight from the state last year when he asked the Nevada legislature to soften the new rules.
Unless a more trust-friendly overhaul could be found, he warned back in April of last year, trust companies would “be driven from Nevada or barred from being licensed here.”
That testimony appears to have come true. While Duncan’s amendments helped save Nevada’s private trust companies, their retail cousins got no such savior.
While “friendlier jurisdictions” like South Dakota are luring big business from out-of-state applicants, Nevada has not licensed a single public trust company since last May, when Saturna Trust got its charter—well before the heavier regulatory burden kicked in.
Whether Nevada lets more trust institutions slip off its rolls or starts actively courting new ones, Matthew Saltzman would simply like to see the state clarify its position.
“A more formal Nevada trust office needs to be established,” he says. “Unfortunately, there’s no way to compensate the regulators based on the amount of license fees the state brings in.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and the editing.
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Permalink: http://thetrustadvisor.com/news/natco
South Dakota Sets Record for New Trust Companies
Posted by Scott Martin in News on May 15, 2010
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 of Banking announced that Pittsburgh-based Mid Atlantic Capital Group, a $19 billion wealth manager and trust technology provider, applied to receive a charter. Approval is expected before July 1.
Mid Atlantic’s not the only Pennsylvania trust operation to set up shop in South Dakota. Earlier this year, Consohocken, PA-based multi-family office Sterling Trustees decided too that South Dakota’s compelling trust benefits made it better than the other no-tax dynasty trust states.
Sterling’s president Antony Joffe told me, “We picked South Dakota because we wanted the best trust law environment and thought they had what we needed.”
They just received official approval this week and are now ramping up ambitious plans to offer trust services to registered investment advisors, as well as more effectively run the roughly $500 million in high-net-worth trust accounts they already have.
Sterling is one of seven public trust company going through South Dakota’s approval process this year. Denver-based United Western Bancorp’s UW Trust Company, with $2.6 billion in assets, received its approval at the end of March.
Counting Mid Atlantic, three other applications in the pipeline, and private trust companies, and a record 10 companies have entered the South Dakota system so far this year.
One of them, Kingsbridge Trust Company, was launched by Kingsbridge Private Wealth Management of Las Vegas to complete its suite of family office services. CEO David Dunn told the Trust Advisor Blog that the process “isn’t easy,” with hours of meeting with regulators and answering tough questions. “It required a great deal of background work just to file the application,” he says.
“We’re okay with startups”
What’s driving the flood? Five months ago, Les Revzon, president of trust consulting firm Advisors Institutional, who assisted Mid Atlantic with its trust charter application, attended a meeting in Pittsburgh with Mid Atlantic VIP’s to lay out the case for why South Dakota might be the best place to host its new trust company operations.
It didn’t take more than 10 minutes for the honchos at the table to overwhelmingly agree that South Dakota would be their new home. With the benefits adding up—no taxes, dynasty trusts, asset protection trusts, directed trusts, low capital requirements and affordable on-the-ground services—they were sold. All of that sounded a lot better than posting $1 million in regulatory capital in Nevada or Delaware, big staffing costs and waiting over a year for a trust charter.
The interest in the state’s trust environment isn’t too surprising, says Bret Afdahl, counsel for the South Dakota Division of Banking.
“We’re business-friendly, which means that we want our trust companies to succeed,” he told me. “Profit is not a swear word in our state.”
Afdahl likes to discuss the advantages of his state’s trust jurisdiction, and with good reason: According to state statistics, the Division of Banking booked a record $262,651 in trust-oriented revenue last year in the form of examination and supervision fees.
To attract new institutions that measure up, capital requirements are low. A trust company needs to post $200,000 to set up shop in the state. Other centers of the trust industry like Delaware and Nevada require $1 million or more to obtain a trust charter.
New legislation kicks in July 1 to tighten the capital requirements at regulators’ discretion, but this is aimed at established institutions that might run into trouble, Afdahl told me. “We’ll keep it low on the front end to allow for startups,” he says.
Although the new rules also mandate additional background checks for principals and key employees, the South Dakota approval process is streamlined compared to other jurisdictions.
Antony Joffe got the green light in about five weeks, compared to an estimated year to move an application through the Delaware system or up to two years of dealing with the FDIC for a federal trust charter.
Nevada’s quest for modernization
By sheer number of operating trust companies, South Dakota has leapt ahead of Nevada and even Delaware.
Nevada’s lack of appeal for new trust institutions seems odd when you consider that the state went through a great show of modernizing its trust statutes late last year in order to attract new business.
State regulators wouldn’t comment on success or failure. However, a source familiar with local politics says “updating” the rules was less about making the state friendlier to public trust companies and more about setting up barriers to entry.
“You can probably read behind the lines and see that the number of public trust companies in the state hasn’t budged this year,” my source told me. “The new capital requirements make it more difficult for public companies to be formed.”
We were unable to interview officials from Delaware, but according to Bret Afdahl, the issue for that state’s regulators is “quality,” or at least exclusivity. Delaware is legendary for enforcing extremely stringent audit and residence standards that can be too expensive for smaller players to consider.
“Delaware’s rules only really allow for big companies,” he told me. “You need X square feet and Y full-time employees, of whom Z must be trust officers. It doesn’t disallow startups, but you need to be pretty big to cover the initial expenses.”
When it comes to operating on the ground in South Dakota, Sterling Trustees’ Antony Joffe is excited. He plans to set up an office and move all his existing fiduciary activities there.
“We’ll still manage some trusts here in Philadelphia on an individual basis, but we’re going to try to run as much as we can out of South Dakota,” he told me.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes and senior editor Jerry Cooper contributed.
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