The Makings of a Modern Trust
It’s time to take a fresh look at trusts. They need not be the rigid, expensive edifices familiar to previous generations or fans of Downton Abbey.
A modern trust should be a flexible, dynamic structure that protects and promotes a family’s assets and its values, balancing the intent of the grantor with the real life needs of the beneficiaries.
In thinking about existing or new trusts, the best starting point is the purpose of the trust. Whether it’s to preserve assets for a spouse and/or transfer assets to future generations in a tax-efficient and effective manner, shelter assets from future creditors or provide for the care of a family member with special needs, the most effective trusts are established and administered to meet those goals.
Trusts also need to be properly managed. As we’ve discussed in earlier editions of Independent Thinking, there’s a reason for the old saying in this business: that you can make a small fortune by handing over a large one to a bank trust department. Investing trust assets exclusively to preserve capital, as is still the practice at many old-line trust companies, inevitably erodes that capital over time, as taxes and fees coupled with poor investment returns take their toll.
Instead, investment and management decisions for a modern trust generally shouldn’t be that dissimilar from a thoughtful, sophisticated goals-based investment process generally. Risk/return trade-offs, cash flow requirements, and income tax status for a trust need to be evaluated much like an advisor would do for individuals. Investment vehicles that were once the preserve of institutional investors can now be used to complement the overall strategy of the trust and to grow wealth as well as to preserve it.
It’s important not to stop there, however. A properly drafted trust agreement must offer flexibility so that trustees can fulfill the true intentions of the grantor should circumstances change. Appointing the right trustee, as described on page 16, is critical. There could be new family members to consider. Or someone who had suffered from addiction could show marked signs of recovery. The selection of the situs of the trust is also equally important. A national charter can be important, as families disperse across the country, while certain trusts may be better located in a trust situs such as Delaware to take advantage of more flexible trust structures and favorable income tax and asset protection attributes. (See the article on Delaware trusts on page 14.) The point is: Future generations may prosper or encounter challenges that we can’t anticipate – and the trust needs to be flexible enough to honor not just its stated purpose, but also the true intent of the grantor.
As with most endeavors, establishing, managing and administering a successful trust depends in large part on the attitude of the people doing the work. Do they work together, as a team, with you and your other trusted advisors? Do they possess the knowledge and experience required to make fiduciary decisions that solve complex issues? Do they have the flexibility to manage unique assets or large, concentrated holdings in the context of the trust’s goals and overall family wealth transfer plans? Most important, have they taken the time to understand your objectives and concerns?
In the trust business, there is no substitute for direct relationships between a grantor (and beneficiaries) and the professionals to whom they are entrusting those assets. Wealth advisors and investment managers need to take the time to really get to know their clients, their families, their businesses, and their legacy goals. Understanding how a particular trust fits into a family’s long-term wealth planning and governance plan enhances the advisory relationship and ensures that advice is tailored to the specific family’s circumstances.
It’s ironic that something that sounds so old-fashioned has fallen out of practice at the traditional trust companies. But it should be the standard, at any firm. If you are directed to a 1-800 number to discuss your trust, then consider discussing it somewhere else, with senior professionals who will listen. In a similar vein, transparency in all its dealings should be the hallmark of a modern trust company. Clients should expect a simple fee structure, free from hidden charges or premiums for working with co-trustees or co-executors.
Finally, it’s important to stress that experience does matter. An old name on the front door is no guarantee of expertise inside. Indeed, some of the firms established around the time of the Lehman collapse, when many of the most experienced planning and investment professionals fled big bank and brokerage models to better serve their clients, are arguably better positioned to manage and administer modern trusts.
At Evercore Wealth Management, our founding partner and CEO, Jeff Maurer (and the Chairman of our affiliate Evercore Trust Company, N.A., a national trust bank), started his career as a fiduciary advisor, as did many of our partners and other senior professionals across the United States – it’s in our DNA. In short, we know what it takes to build a modern trust company. And we follow through, with a complementary range of family wealth planning and investment services, always striving to achieve the best possible after-tax, after-fee, risk-adjusted performance to honor the intent of the grantor and ensure the lasting well-being of the beneficiaries.
Chris Zander is the Chief Wealth & Fiduciary Advisor at Evercore Wealth Management. He is also the President of Evercore Trust Company of Delaware. He can be contacted at firstname.lastname@example.org.