In a traditional trust arrangement, a corporate trustee is responsible for making decisions on investments, distributions, and for the administration of trust assets. All three functions are typically handled in-house. We call this the bundled approach. A trust company may either offer investment management services or delegate investment management to a third party. The trustee still has the ultimate fiduciary responsibility to monitor and oversee the investments and typically will charge a fee based on the market value of the underlying assets, subject to fluctuations in the stock market.
In a directed trust arrangement, the trust document allows for the splitting of trustee duties into multiple roles: an Investment Trustee with the sole discretion to make investment decisions on behalf of the trust, a Distribution Trustee with powers to make or authorize distributions from the trust, and an Administrative Trustee responsible for maintaining books and records and signing tax returns and other documents in an administrative capacity. We call this the unbundled approach. Clients see the value of a corporate trustee for situs, tax, and administration but would prefer to work with their existing professional team of advisors for the investments and perhaps the distribution functions of their trust. A directed trust gives trust grantors, beneficiaries, and their professional advisors more control over a client’s estate plan. Once a cutting-edge planning technique, directed trusts are now the preferred trust structure of the wealthy.
Three Benefits of Directed Trusts
1. Lower trustee fees
In a directed trust arrangement, the investment management responsibility is removed from the corporate trustee, thus removing the investment liability. This is important because a trustee’s liability for the underlying investments is typically a major factor in determining trustee fees. If the corporate trustee has no investment liability then its fee should be less. Many directed trustees charge a flat fee instead of an asset-based fee to administer a directed trust because of this reduced overall liability.
2. Investment Flexibility
Given the option, most clients would like to determine what their trust can buy, sell, and hold. They want an advisor they know and trust to manage their investments. They see the value in a corporate trustee administering their trust, but they want the expertise of their trusted financial professionals along the way. Wealthy clients also have nontraditional assets such as, closely-held businesses, family limited partnerships, LLCs, private equity interests, etc., which may not fit under a corporate trustee’s investment parameters. A directed trust allows clients to preserve, protect, and grow these unique assets that are core components to their family’s financial success.
3. Greater control
“The task is not to control the wind, but to direct the movements of the ship so that it stays on course.”
Wealthy clients are used to controlling their destiny. They are the captain of their ship, and they like it that way. In estate planning, clients must be willing to give up some level of control, but to the extent they can retain as much as possible, they would prefer it that way. We have discussed giving the client or their trusted financial professional investment discretion in their trust, but some clients also want to give a family member or committee the power to authorize distributions from the trust. They feel this would give more peace of mind and protection for their beneficiaries with fewer restrictions. In a directed trust, they can do just that. The distribution trustee or distribution committee will be able to direct the corporate trustee on when to make a distribution from the trust to a beneficiary.
Nevada has one of the most powerful directed trust statutes in the country. NRS 163.
If you have any questions about directed trusts, please email firstname.lastname@example.org or call 702-998-3700.
Are you working with a directed trustee and have been given investment discretion within a trust document? This guide breaks down the three simple options of how the lines of communication work between you, ICON, and a financial advisor.
Option A - You are the coach. You call the shots (80% of the time)
You have a conversation with your financial advisor about your desire to buy 50 shares of Apple stock.
You call or email ICON directing us to purchase 50 shares of Apple stock.
ICON calls or emails your financial advisor telling them to purchase 50 shares of Apple stock.
Option B - You are the GM. You delegate to your advisor, they call the shots (15% of the time)
A financial advisor has a call with you about the parameters of a fully discretionary investment account. The financial advisor explains that if he/she stays within these parameters the three parties do not have to communicate back and forth.
You confirm with ICON you want to give your financial advisor discretionary approval.
You direct ICON to sign the financial advisor’s discretionary authorization form and Investment Policy Statement (IPS).
ICON calls or emails your financial advisor with confirmation to implement their Investment Policy Statement (IPS).
Option C - You are the player. You take the shots (5% of the time)
This is a true bifurcated trust. You have full investment responsibility and should be able to make all investment decisions and direct your financial advisor without any consultation with or involvement by ICON.
*This is how technically it should work, but most of the financial industry/custodians as a whole have not adopted this approach yet.
This guide was created to help you in working with a directed trustee. The goal was to show it is not complicated. The first couple of interactions will be a learning process and once you get the process down, it will be smooth sailing.
Do not hesitate to call your trust officer if you have any questions (702) 998-3700.
3 Ways Financial Advisors Can Offer Trust Services
1. Referral to an Advisor-Friendly Trust Company
The easiest way to provide trust services is to partner with an independent advisor-friendly corporate trustee in a tax-favorable jurisdiction that focuses exclusively on the administration of trusts. IconTrust, LLC (ICON) can fill that role. ICON is a Nevada Chartered advisor-friendly trust company. Advisor-Friendly means the trust company does not manage investments, draft trusts, or prepare tax returns. ICON’s role is to administer trusts in coordination with a client’s existing professional team. If ICON has investment discretion within a trust document, ICON will typically delegate that role to the client’s existing financial advisor.
The advisor must feel secure with the advisor-friendly trust company, its business model, and its procedures. The advisor must feel confident with the trust company’s brand and the customer service provided by its trust officers. At the end of the day, the advisor’s client is a client of the trust company, and the advisor is hired by the trust company to provide investment management. The trust company must do nothing to jeopardize the relationship between the advisor and the advisor’s client, only enhance it.
2. Private Label Trust Services
Financial advisors who want to broaden their client relationships to offer trust services under an extension of their existing brand may be interested in a private label trust services relationship (PLT). A PLT relationship is established with a comprehensive PLT Services Agreement between the financial advisor and an existing trust company. The financial advisor will receive a brand name for their private label trust services, e.g., PWM Trust Services, and branded client statements. The financial advisor will typically pay a one-time setup fee to establish the PLT relationship and a revenue share can be created with the trust company. The trust company, for example, ICON, retains all fiduciary liability and must sign off on all marketing materials for the financial advisor’s private label. A separate phone number is issued by ICON in the name of your private label brand. A representative of the PLT partner and a representative of the trust company will work together to provide ongoing training and marketing support.
The private label is a middle ground between referring to an advisor-friendly trust company and starting your own trust company.
3. Start a Trust Company “Family Office”
Some financial advisors are not comfortable with giving up a level of control in a partnership with an independent advisor-friendly trust company and would rather go through the rigorous process of starting their own trust company. These firms must be comfortable with setting aside capital, hiring trust officers, creating the corporate and compliance framework, and assuming 100% of the fiduciary liability.
A trust company can be chartered by a particular State or by the Office of the Comptroller of the Currency (OCC). Whether chartered by a particular state or by the OCC, a trust company would typically be subject to certain capital requirements, require a fidelity bond and/or E&O insurance, along with complying with BSA/AML standards like most other financial institutions. For example, in Nevada, the capital requirement is $1M, and a physical office in Nevada staffed with a trust officer is required. Further, a chartered trust company in Nevada will typically need another $500k - $1M in operating capital.
Most “family office” trust companies are state-chartered and are established under one of the top four trust jurisdictions (NV, SD, DE, AK). These states are typically business-friendly, have no state personal or corporate income tax, possess the top assets protection statutes, and permit the use of Dynasty Trusts to last several generations.
The barrier to entry in the four top jurisdictions is very similar and an advisor must make sure they want to assume the financial risk and liability associated with starting a trust company. Profitability can be elusive, possibly taking several years.
Financial advisors have been successfully implementing each of these options in providing trust services to their clients. One choice is not better than the others. The advisor must decide how important their brand is when working with their trust clients and how much control they want over the trustee relationship. Partnering with an advisor-friendly trust company, starting a trust company, or creating a private label arrangement all solidify client relationships across multiple generations.
If you have any questions about a referral or private label trust relationship with ICON, please email email@example.com or call 702-998-3700.
The assets transferred to the trust should be considered a rainy-day fund and should not be assets you need to live off regularly. You should make sure this trust is set up when there is no known, threatening, or pending creditors. If you have a creditor looming and transfer assets to an asset protection trust, the transfer will most likely be considered fraudulent. Finally, you should not overfund the Nevada Asset Protection Trust. A good guideline would be to not place more than 50% of your assets into a Nevada Asset Protection Trust. If you do, an argument can be made that you are insolvent.
2. Retain Certain Powers Under Nevada’s Statutes
Under Nevada’s statutes, you may retain certain control and powers when it comes to the asset protection trust. You can be your own investment trustee to determine what the trust buys and sells without disqualifying the trust’s asset protection. You should not, however, be your own distribution trustee. The distribution trustee should be a third-party, not related to or subordinate to you, or a trust company. If you need funds in the trust, you would request a distribution from the distribution trustee. The asset protection comes from the fact that the distribution trustee must approve the distribution - you cannot.
3. You do not have to Live in Nevada
You do not have to live in Nevada to set up an asset protection trust. The majority of our clients do not live in Nevada but set up a Nevada asset protection trust to benefit from Nevada’s laws. For an out-of-state client one of the easiest ways to qualify a trust under Nevada law is to have one trustee or co-trustee be a Nevada resident or Nevada trust company. A quick list of unique features of Nevada’s laws are below:
Nevada’s two-year seasoning period is one of the shortest in the nation. This is the time that must elapse between when you transfer assets to the trust and when they may be creditor protected.
Nevada has no exception creditors, including a divorcing spouse for child support and alimony.
Nevada has superior charging order protection for Nevada LLC or LP. The charging order protects the underlying assets of the LLC or LP if you are personally sued.
4. What will it cost you?
In our experience, the average cost to have a qualified estate planning attorney draft an asset protection trust is somewhere between $5,000 - $10,000. The cost of having a trust company serve as trustee can be anywhere between $3,000 - $5,000 per year.
5. How Effective are They?
I am betting you want to know if they definitively work. The answer is "Maybe". There has not been a lot of case law one way or the other. This should give you some confirmation of their effectiveness. If you are still skeptical, estate planning attorneys have created a hybrid domestic asset protection trust. In the hybrid trust, you may be able to indirectly access trust assets through your spouse, and it’s a third-party trust which offers definitively more protection than a self-settled trust.
America's Most Advisor Friendly Trust Companies 2021
The Winners List
The America’s Most Advisor Friendly Trust Companies guide was released this week by The Wealth Advisor, a leading voice in the financial services industry. This guide details 21 of the best non-custodial, non-management trust companies in the industry. IconTrust is the newest company on the list.
To view our profile or download the full guide click below.
The trust companies on this list partner with advisors instead of competing for assets under management. They realize that investment management is best provided by the client's trusted financial advisor and trust administration is best provided by an independent corporate trustee. This is in stark contrast to the traditional trust companies of the past that handle both sides; trust administration and investment management. Many clients prefer the separation of duties, flat trustee fees, and the greater flexibility of an advisor-friendly trust company.
"A trust account is an investment account with instructions. You handle the investment account, we handle the instructions."
Providing Trust Services is a Differentiator in the Marketplace
The average consumer is smarter than ever before and knows that investment management can sometimes be a bit of a commodity. They are reminded of computer-based platforms that can supposedly match market returns for a fraction of the price of a financial advisor. This is why managing trust accounts is such a differentiator in the marketplace. Providing trust services goes beyond asset management and into deep conversations about legacy planning and family dynamics that can solidify advisor relationships for many generations. Trust assets are sticky and working with an advisor-friendly trust company is a financial advisor’s glue to the next generation.
The Time is Now to partner with a trust company
With a new political administration and a potential of a decrease in the estate tax exemption, wealthy families will need estate tax planning advice in 2021 and beyond. For advisors, there has never been a more opportune time to partner with a law firm and an advisor-friendly trust company to offer estate planning services. Advisors who are proactive in providing advice in this potential new tax environment are poised to attract many new wealthy families to their business.
Partner with IconTrust
IconTrust was founded in 2020 and is the newest trust company to the list of America’s Most Advisor Friendly Trust Companies. Years of experience in an outdated and archaic trust industry prompted us to create a new model for advisors and their clients. We think charging trustee fees based on assets under administration is outdated. Our flat trustee fees for all types of trusts are easier for advisors to promote and for clients to understand.
We feel our flat fee schedule for all trust services is a true differentiator in the marketplace. We built IconTrust with simple procedures and simplified fees that everyone can understand. We believe our model will set a new standard for how a modern trust company should operate and provide services to advisors and their clients.
A trust settlement checklist is a must-have if you have been named as successor trustee on a trust. After the death of an individual, their estate plan needs to be administered. This process is called post-mortem administration and is a series of tasks performed by a fiduciary named in the estate planning documents. The fiduciary of a trust is called a successor trustee.
Serving as the successor trustee of a trust is not a role to be taken lightly. Administration can be an arduous and time-intensive project even for a professional trustee, let alone an individual trustee who may not be familiar with the fiduciary duties and liabilities they are undertaking. If you have been named as successor trustee on a trust, the following checklist may serve as a guide of some of the duties you may perform in settling the trust and carrying out the wishes of the decedent.
16 Steps to Settle a Trust and Distribute Assets Outright to Beneficiaries
Locate estate planning and financial documents including, but not limited to, wills, trusts, powers of attorney, financial statements, and tax returns.
Obtain multiple certified copies of death certificates through funeral homes or mortuaries. You can also order death certificates through your state’s vital record office.
Obtain a Federal Tax Identification Number (TIN) through the IRS. Visit IRS.gov to apply for a TIN.
Contact an attorney to draft a formal acceptance of you accepting the role as trustee and file a notice to creditors.
Contact the decedent’s professional team (attorney, financial professionals, CPA) to notify them of the death of the decedent, your appointment as trustee, and discuss your role in the administration of the trust. The decedent’s professional team will be a valuable resource to help gather all the necessary documents to help you do your job. You will want to provide copies of the death certificates to the decedent’s professional team.
Consult with the decedent’s CPA to prepare the decedent’s final tax return and the trust tax return. Discuss with the CPA whether an estate tax needs to be filed.
Review the will or trust and identify the beneficiaries; make a list of their names, addresses, and contact information. Read the section of the trust about your powers and responsibilities.
Contact the post office to forward all mail to you as the successor trustee.
Cancel all services and utilities for the decedent. Pay any outstanding debts, including credit card bills.
Contact financial institutions to obtain access to the decedent’s bank and financial accounts. You will need to reregister bank accounts under your name as trustee.
Take an inventory of trust assets to determine which assets are titled in the trust and which assets may need to be administered as part of the decedent’s probate estate. Determine and update the cost basis of each asset at the date of death (step-up in basis).
Value any illiquid investments such as real estate, automobiles, art, business interests, etc.
Contact insurance companies and file any claims for life insurance benefits.
Obtain any information about retirement plans due to beneficiaries. Also, file any claims for social security benefits.
Begin distributions of any tangible personal property. Look to see if there is a list, Personal Property Memorandum, or specific instructions.
Distribute remaining assets to the beneficiaries per the trust document.
If you have any questions about the above trust settlement checklist, please email firstname.lastname@example.org or call 702-998-3700.
A corporate trustee is a bank or independent trust company that is licensed to act as trustee of a trust.
What is a Trustee?
A trustee is an individual or company who holds the legal title of trust assets for the benefit of the beneficiaries of a trust.
A trustee can serve today (current trustee) or in a future capacity (successor trustee) depending on the goals of the estate plan.
A trustee can serve alone or in a co-trustee capacity with other persons.
What is the Role of a Trustee?
The primary function of a trustee is to administer trust assets according to the grantor’s wishes while considering the interests of the beneficiaries of the trust.
A Trustee Wears Three Hats:
Administration Hat – Responsible for keeping the books and records of the trust and signing the tax returns.
Distribution Hat – Responsible for determining when an asset comes out of the trust and is distributed to a beneficiary.
Investment Hat – Responsible for managing the underlying investments of the trust. The trustee must ensure the trust assets are invested prudently and fit the overall objectives of the trust.
In a traditional trustee arrangement, one trustee wears all three hats. The trustee is responsible for the investments, distributions, and administration of the trust. Thankfully, over the last twenty-five years, many states have amended their laws to allow for the splitting of trustee duties, commonly referred to as a directed trust arrangement. This arrangement allows for the bifurcation or trifurcation of trustee duties giving trust grantors, beneficiaries, and their professional advisors more control over a client’s estate plan. Grantors can now decide which hats they want their trustee(s) to wear and what powers they retain. The grantor can select one sole trustee with full powers, or multiple trustees to wear different hats and retain only certain powers.
Why a Corporate Trustee Makes Sense?
If you are setting up an irrevocable trust while you are alive, you will need a trustee to act today. Some of the reasons you might set up an irrevocable trust are for asset protection, gifting, estate tax planning, income tax planning, charitable planning, opportunity shifting, etc. You will need to separate yourself from the assets and having a trustee in a top trust jurisdiction can be to your benefit for state income tax savings and asset protection.
There are many factors to consider if you have a revocable living trust and are looking for a successor trustee to take over in the event you become incapacitated or pass away. Please look at the following chart to determine whether a family member or a corporate trustee makes the most sense within your estate plan.
What are the Advantages of a Corporate Trustee over an Individual Trustee?
Do they have experience serving as a trustee? Do they know the responsibility & liability of serving? Do they want to serve?
Has Trust Officers trained in trust administration with expertise in record-keeping, tax and trust law.
Time / Resources
Do they have the time required to administer a trust? Do they have the appropriate resources?
Has a full-time dedicated staff and a network of estate planning professionals.
Has the discretion to charge a fee, usually drafted into the trust document, or determined by state statute.
Should have a published fee schedule on their website. Usually more expensive than an individual trustee.
Knowledge of the Family
May have more intimate knowledge of the grantor, his or her wishes, and the beneficiaries
May have less intimate knowledge of the grantor, his or her wishes, and the beneficiaries.
Impartiality / Objectivity
Biased. It is very difficult for individuals to not show biases during trust administration. Can they make difficult decisions without emotion, strictly based on the trust provisions?
Unbiased. They can only do what the trust document tells them to do. They are not affected by emotion and have the appropriate tools to make difficult decisions.
Location for state income taxes
Do they live in a state with a state income tax or a creditor friendly jurisdiction?
Does the corporate trustee reside in a favorable jurisdiction like Nevada for tax and creditor protection?
What is their age?
Corporate trustees continue in perpetuity.
Will they resign if asked by the beneficiaries?
Run a business and will typically resign if asked by the beneficiaries.
Regulated / Insured
Financially stable and carry insurance to protect the beneficiaries.
The following key benefits of Nevada law have made Nevada the top trust jurisdiction in the United States. You do not have to live in Nevada to take advantage of Nevada's favorable trust and tax laws.
1. No State Income Tax -
Nevada does not tax individuals or trusts at the state level.
2.Nevada Trusts may last 365 Years -
Commonly referred to as the rule against perpetuities, a Nevada trust may last 365 years. A trust lasting 365 years, combined with no state income taxes levied at the death of each generation, can create substantial compounding growth over multiple generations.
3. Nevada’s Directed Trust Statute -
Allows for the splitting of trustee duties into multiple roles: An Investment Trustee or Investment Advisor, with the sole discretion to make investment decisions on behalf of the trust, an Independent trustee or Distribution Trustee with powers to make distributions from the trust, and an Administrative Trustee responsible for maintaining the books and records of the trust.
4. Nevada Asset Protection Trusts (NAPT) -
Legally termed Nevada Self-Settled Spendthrift Trusts A grantor may create an irrevocable trust in Nevada for their own benefit. The grantor is the creator of the trust as well as a permissible beneficiary. NAPTs are established to protect a portion of the grantor’s assets during the grantor’s lifetime. Nevada is one of only 19 states that allow self-settled trusts and is consistently ranked as the top self-settled trust state for the following reasons:
Two-year seasoning period – This is the time that must elapse between the transfer of assets to the trust and the time when those assets should be protected from creditors. Nevada’s two-year statute of limitations on transfers to the NAPT is one of the shortest in the nation.
Nevada has no exception creditors – Some state statutes allow for exception creditors that can pierce the trust when a regular creditor cannot. These exception creditors most often include a divorcing spouse for child support and alimony and can also include tort creditors. Nevada does not recognize exception creditors.
The grantor of the trust may also act as the investment trustee of the trust. This allows the grantor to manage the investments inside the trust.
Charging order protection for partnerships and LLCs - Creditors of a member of an LLC or limited partner of a partnership are statutorily forbidden from attaching assets held in a partnership or LLC in Nevada. The most the creditor can obtain is a charging order (similar to a lien) against the LLC or limited partnership interest, which entitles the creditor only to distributions actually made from the partnership or LLC to the debtor member/partner.
f you have any questions about the key benefits of Nevada law, please email email@example.com or call 702-998-3700.
There is little doubt Nevada has taken over as the top trust jurisdiction in the United States. For years the estate planning community has looked to states like Delaware and Alaska for their favorable tax and asset protection laws. Not anymore. The top estate planners in the country are increasingly using Nevada as their preferred out of state trust jurisdiction for high net worth clients and their families.
Top 5 Reasons Why Nevada is the #1 Trust State for Compounding Wealth and Asset Protection:
#1 - Nevada Asset Protection Trusts
Nevada enacted its domestic asset protection statute in 1999. A Nevada asset protection trust (NAPT) is an irrevocable trust in which the creator of the trust is also a permissible beneficiary. Two years after the creator transfers a portion of their assets to the trust, those assets should be protected from all creditor claims. A Nevada asset protection trust is a vehicle to protect assets from creditor claims which are becoming more prevalent in our highly litigious society.
Nevada is unique with one of the shortest statutes of limitations, with most domestic asset protection trust states having a four-year statute. Nevada is also one of only two states that have no exception creditors. These are creditors that can pierce the trust irrespective of a state's statute. Nevada has none. Sixteen of the nineteen domestic asset protection trust states have exception creditors, including a divorcing spouse for child support and alimony, in addition to other potential creditors.
#2 - State Income Tax Savings
Nevada does not have a state income tax. Therefore, a trust sitused in Nevada will be responsible for filing a federal income tax return, but there is no corresponding Nevada tax or filing. Investable assets held inside a Nevada trust can compound substantially without having to pay state income taxes. To learn more about which states are most tax-friendly for the wealthy, read the recent USA Today article posted in January 2020: https://www.usatoday.com/story/money/2020/01/29/the-most-tax-friendly-states-for-the-rich/41060485/
#3 - Nevada Directed Trust Statute
A directed trust allows for the separation of a trustee's roles among multiple parties. The old traditional trust had one trustee responsible for the investment, distribution, and administration of a trust. A handful of states have enacted directed trust statutes which allow the investment and distribution functions to be handled by a family member, friend, or other trusted advisor while leaving the administrative functions to a corporate trustee.
The unbundling of trustee services gives trust grantors, beneficiaries, and their professional advisors more control over a client’s estate plan. Clients prefer the separation of duties, flat trustee fees, and the greater flexibility of a directed trust arrangement.
#4 - Nevada's Decanting Statute
Decanting is the act of pouring assets from an old trust to a new trust with more favorable terms. For years estate planners struggled with the simple fact that irrevocable trusts were irrevocable and could not be changed. Nevada's decanting statute allows for the modification of an irrevocable trust to address changes in trust law and dynamics within families that could not have been predicted. Some of the most commons reasons to decant are to change drafting errors, trustee provisions, distribution standards, and governing law.
#5 - Dynasty Trusts
The length of time a trust can last is dependent on the state’s "Rule Against Perpetuities." In 2005, Nevada's laws were amended to allow a trust to last for 365 years. This means a trust in Nevada can last for 365 years without the trust assets being subjected to an estate tax levied at each generation. The current estate tax exemption for 2020 is $11.58M for an individual and $23.16M for a married couple. Any amount over these thresholds is subject to an estate tax of 40%. These current estate tax exemption amounts push Dynasty Trusts down to #5 on our list of why Nevada is the #1 state for trusts. One thing we do know about estate taxes is they are subject to change. If the estate tax exemptions are lowered through sunset of the current law, or through a change in administration, the Dynasty Trust would move up in the ranking of why Nevada is the #1 state for trusts.