Obviously, these are opportunities to build deeper relationships. But they're also opportunities to support the real intent of the grantor. Over and over we see advisors who don't know who the successor trustees are, and they get removed from the account when the grantor dies or becomes incapacitated-just when financial management and personal support are most important to the client's family members.
Another benefit of trusts is that they enhance your relationships with other financial intermediaries. Without networking, where would we be? When you are able to manage trust accounts, you can gain access to clients' tax professionals and even work closely with their estate planning attorneys. This is not only a networking opportunity but a source of referrals and recommendations for new clients.
Where to Look For Trusts
Gathering trust assets is easier than you think. In our work with advisors, we see it happen in three common ways:
1. When your client becomes the trustee of a trust, or your client is a beneficiary of a trust.
2. During the estate planning process, when your client creates his or her own trust.
3. Or when you transfer a trust from a trust company or bank to your management.
No matter which situation you find yourself in, think of it as an opportunity to become the quarterback for your clients' finances. If the trust is set up correctly, your focus can be on minimizing the administrative burden, managing the investments and connecting with the next generation so they benefit from the continuous advice and guidance of a single advisor who knows the family.
When your client is a beneficiary, a trust basically falls into your lap. That's the good news. However, if your client becomes the trustee, you may be responsible for managing some serious and time-consuming tasks, including:
Separating principal and income
Paying beneficiaries calculated and/or fixed income payments
Making periodic trust accounting reports
Paying bills on behalf of the trust and/or beneficiaries
Preparing the trust taxes
While you can take on these responsibilities yourself, many advisors find it easier to seek help from a trust-services provider. A trust-services platform, such as Schwab Personal Trust Reporting Services, can handle the record-keeping, payments and reporting. With the provider managing the administration, you can focus on managing the assets. And your client (the trustee) can focus on the terms of the trust.
Other times, however, the client himself is the one creating the trust. While working with your client's attorney in setting it up, you have an important decision to make: Do you want to be responsible for both the administration and the money management, or just the asset management? For some advisors, the administration may be too time-consuming. To reduce this burden while maximizing the benefits of asset management, many advisors use trusts with an administrative location (called a "situs") in certain states, such as Delaware. This allows the trust to separate investment management from trust administration. This separation, also known as "bifurcation," enables you to manage the investments while a corporate trustee handles all the administrative duties.
The downside? If your client sets up a revocable living trust, when he or she dies the trust assets will pass to the successor corporate trustee, which may be a bank or trust company. In this scenario, you may risk losing the assets, and your client's family may be at risk because the bank that now manages the trust may not know the client as well as you do and not truly understand the goals of the trust.
An alternative is using services from an independent trust company or using a service such as Administrative Trustee Services from Charles Schwab Bank in Delaware as the corporate trustee. With the Schwab service, you can continue to manage a client's trust and non-trust assets without having to worry about potential corporate competition.
Many advisors believe the third and final scenario, transferring a trust from a trust company or bank, is too difficult to do. You're likely to think, as an advisor, that the trust business cannot be wrested away from the bank (or any other type of large institution better known for managing trusts) because you won't be able to provide the same level of service and support. But that's not true. With the support of corporate trustee services like Schwab's Trust Asset Services, you should be able to handle any level of trust business you like (from basic reporting to acting as the corporate trustee). So if you want to take over the trust assets of your clients, you can manage their entire trust and non-trust portfolio, expand the products available to them and continue to make decisions in their best interest.
Helping Your Clients While Helping Your Firm
So let's review. Yes, changes are coming to the estate tax-but that's no reason to wait on trusts. In fact, now is the ideal time to complete some basic tasks for every trust you manage or intend to set up:
Find out exactly who the settlors and beneficiaries are and get to know them.
Determine who the successor trustees are in the trusts you manage.
Recommend to your trust clients that they have their trust documents reviewed.
And remember, while trusts can help build your business, they can also help your clients with a wide range of goals:
They can preserve an estate.
They can minimize transfer taxes.
They can provide asset management continuity.
They can benefit from professional management.
And they can protect assets.
That means if your high-net-worth clients aren't using trusts already, they're likely to consider them. To serve your clients' needs-and grow your practice-it may be time to grow your trust services as well.
Cathleen M. Clauson is the vice president of Trust Asset Services, Charles Schwab Advisor Services. She is responsible for building out the company's trust capabilities.