America's Most Advisor-Friendly Trust Companies 2024 - 16

2024 AMERICA'S MOST ADVISOR-FRIENDLY TRUST COMPANIES
assets, changing residences as tax
laws shift. Because of this, many large
family offices are opting for maximum
flexibility when the time comes to
decide where to set up the new trust.
In addition, family needs change
from generation to generation.
Even if the prospective trust grantor
doesn't need a particular tax
benefit or class of protection at the
moment, these advisors know that
circumstances change. And since
multiple generations may be part of
the equation, the trust must be able
to evolve with the family's needs.
Because of this, many advisors look
for a combination of factors when
searching for a trust company:
Perpetuities. Conventional trusts
can expire a few decades or maybe a
century after the original grantor dies,
but many states allow property to
remain in trust for many generations
longer than the standard state, and in
some cases, forever. These perpetual
trusts or dynasty trusts are a very
popular technique for planners and
clients today.
Favorable tax rules. Avoiding
state income or capital gains tax is
another key objective for planners
to achieve for their clients. Alaska,
Florida, Nevada, New Hampshire,
South Dakota, Texas, Washington
and Wyoming do not impose an
income tax on trusts. Delaware
does not impose an income tax on
trusts if the income or capital gains
are accumulated or distributed to
nonresident beneficiaries.
Asset protection. Some states offer
varying degrees of protection for
locally domiciled trusts from the trust
creator's creditors.
While the language can be so vague
as to be useless in court, jurisdictions
like Nevada and South Dakota have a
rich body of statutes in place designed
to shield property from legal claims.
Total return trusts. Many states have
enacted total return trust or power-to
adjust statutes. Trustees in these states
can now invest based on a total return
approach and satisfy beneficiaries who
receive either a share of current income
or the principal at a later date. Most
states with total return trust legislation
have the ability to convert a trust to a
unitrust percentage between 3% and
5%.
Delegation. Needless to say, you
want a trust provider that operates in
a state that allows an outside advisor
to manage the portfolio. But this is not
quite as intuitive as it initially seems.
Review state statutes permitting
segregation of duties to make sure
that the trustee will provide exactly
the level of supervision you find
comfortable-neither more nor less.
Privacy. Most states have methods
for ensuring that fiduciary matters
will not be a matter of public record,
although some are stronger than
others. However, state laws differ
on beneficiaries' entitlement to trust
information, and only a few states
allow a trust instrument to delay or
prohibit disclosure of trust information
to future beneficiaries.
INSIST ON ALTERNATIVES
While investors are increasingly eager
to expand their universe, most trust
companies still focus on a relatively
limited range of asset classes. The
problem is that private equity, real
estate or pure commodity exposure
require a little more due diligence to
work with than vanilla stocks and
bonds.
And even if a traditional trust
company's platform supports them,
it probably doesn't provide much in
the way of active educational and
marketing support. The farther outside
the vanilla-style box clients want to go,
the higher the organizational barrier to
entry becomes and the narrower the
list of viable partners gets.
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In many cases, even specialized
" alternative " custodians need to tap
third-party specialists in order to
prepare statements that counterparties
can understand and regulators will
accept.
Without a clear incentive to cultivate
that level of expertise internally or via
partnerships, it becomes extremely
expensive for a brokerage firm to
conduct that level of due diligence
on its own, whether it puts these
products on the shelf or not.
And unless affiliates get firm guidelines
on which products are suitable for a
given client, selling alternatives into
client accounts can become extremely
expensive in terms of career costs.
Failing to notice that " enhanced " credit
products were faltering, even though
they still looked good on paper, forced
Securities America into an eleventhhour
sale and doomed several other
brokerage firms just a few years ago.
Reps jumped from those firms when
they could, bleeding AUM and
professional reputation. Some left the
industry entirely. Others were pushed.
Either way, the example demonstrates
that the more exotic an investment
is, the more difficult it will be for nonspecialists
to work with under normal
circumstances.
Even if the alternative assets are
simply held in the equivalent of a
" white envelope " alongside the
conventional investments, the best
practice entails everyone in the chain
of responsibility-from custodian to
advisor to client-knowing what's
actually in the envelope at all times.
A trust company that can open all
of its " white envelopes " in a format
that an external auditor can digest
and evaluate is going to have an
easier time keeping everything both
compliant and actively transparent.
America's Most Advisor-Friendly Trust Companies 2024

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