Trust capabilities can take your practice to the next level. Trust services are becoming increasingly popular among the wealthiest families and individuals because they control the disposition of assets to beneficiaries, assign a high level of fiduciary responsibility and ensure a solid structure for future safety and growth.
In the words of Stephan R. Leimberg, a well-known estate planning author and lecturer – the most vital elements of estate planning – what your clients ultimately want in transferring their hard-earned assets to the next generations are: control, certainty, compassion, flexibility, assurance and avoidance of aggravation. Trusts (particularly with a ‘trust friendly’ state situs, like Tennessee) are a key element to delivering and fulfilling those objectives.
If properly constructed, trusts can carry out asset disposition in a tax efficient way. Trust companies act as corporate trustees for their clients, serving in a fiduciary capacity as they administer, manage and eventually transfer assets to beneficiaries for their clients. Where broker dealers and registered investment advisors are required only to select suitable investments for their clients, trustees must make every decision in the best interests of their clients.
Trust companies also have the ability to structure wealth distribution in sophisticated ways, using a variety of trust vehicles, managing estate taxes, family business interests, charitable gifts and intergenerational planning.
Trusts often contain complex dispositive provisions governing the most tax efficient (and beneficiary attentive) methods of transferring a broad variety of assets, including unique interests such as closely held businesses, family heirlooms, farmland, customized annuities or limited partnerships and different methods of charitable giving. Trusts can also contain language dealing with longer term intergenerational planning.
Adding trust services can increase your firm’s value to your most attractive clients and prospects, high net worth and ultra-high net worth individuals and families. This is a large and growing segment of the financial services marketplace, though an extremely competitive one.
Consider that there are now more than 10 million households in the United States with assets over $1 million and more than 1 million households with net worth between $5 and $25 million1. The number of high net worth households has been increasing across all levels of wealth in recent years, given strong stock market returns and accelerating economic growth.
Just as important, many of these high net worth investors are entering a critical period for estate planning, the end of working life and the beginning of retirement. The baby boomer generation, representing roughly 20% of the American population has accumulated some $20 trillion in retirement assets according to a recent analysis by LIMRA. The transfer of those assets over the next several decades represents an enormous opportunity for financial advisors with sophisticated trust company services for estate and charitable planning.
It is also a risk for advisors who do not have the benefit of the asset ‘stickiness’ that comes with being able to offer trust services. That’s especially critical as clients in the baby boomer generation begin to pass on and leave assets to family members. This massive asset transfer process typically entails a change in control and decision making. A recent survey in Financial Advisor Magazine found that 70% of widows had fired their advisors within a year of the husband’s death.
Trust companies are empowered by law to administer and manage assets on behalf of someone else in the form of a trust. Trusts are governed by legal documents which define who the assets will benefit and how they are to be managed and ultimately distributed in the trustor’s behalf. Trusts can be designed to fit many different circumstances and objectives, and by adding this capability to your practice you can offer a wide variety of services.