This post will cover the important of what an advisor friendly trust company in 2021 means for financial advisors and their clients.
This post will include:
- Explanation of why trustee services are a commodity
- Ideas to reduce trustee fees for revocable and irrevocable trusts
- How to choose an advisor friendly trust company
- Quick overview of the top trust situs (eg., states) for trust law
Independent journalists at The Wealth Advisor voted and selected Wealth Advisors Trust Company as one of the top choices for advisors needing innovative and collaborative trustee services for the 8th year.
Trustee Services are a Commodity
Our competitors, whether other independent trust companies or traditional trust companies like Northern Trust, do not want to admit that trustee services are a commodity. Once you admit a product or service is a commodity the company's leadership team must either innovate, lower costs or do both. As Jim Collins wrote in his seminal book, Good to Great, very few people, aka leaders, can admit they offer a commodity and how to beat their competition around that fact.
Trustee services rests on two basic factors - trust accounting and trust administration. If you think about it, trustee services resembles supply chain management (e.g., think of an Amazon warehouse).
Trust accounting offers very manual, boring and repetitive tasks. Those tasks can be replaced with technological allowing humans more time to work on creative problem solving tasks. A leading trust company finds innovative ways to work with financial advisors to make their work lives easier.
Trust administration, though still full of repetitive tasks offers more opportunity for a trust company to shine. Even though we were named an advisor friendly trust company in 2020, hiring and training employees who are comfortable that working in a industry offering a commodity service requires constant innovation. That makes our employees very special indeed. That provides a natural and expanding level of improving customer service.
I guess that is why the independent journalists at The Wealth Advisors keep nominating us as one of the top trust companies for 2021 in America. Not sure how the other guys get included though (just kidding, well sort of).
Bottom line, once an advisor friendly trust company admits they are offering a commodity service they are motivated, like us, to find ever improving ways to deliver best and faster trustee services with less risk to us.
Reduce Trustee Fees for Revocable and Irrevocable Trusts
A trustee fee rests on the risk and time incurred to deliver trustee services. Currently, trust companies do not have detailed data on the exact risk or time inherent in trust administration. They have ranges. Cost-efficient trustee fees should not be a luxury but a standard offering. We view tracking the time required to deliver innovative and collaborative trustee services as critical for two reasons: (1) financial advisors have the granular data on what trustee services they are paying for; and (2) top trust companies can price trustee services on the exact type of risk and time clients want to pay for.
Discretionary distribution rules that remove vagueness. Many trust documents discretionary distribution language only provides guidance that they must fall under HEMS (Health, Education, Maintenance, Support) standards. That covers a lot of ground especially Maintenance and Support.
Here are a couple of ways to reduce trustee fees for a irrevocable trust:
- It would be better for additional language to state dollar amounts for a home and/or cars. Big disagreements occur over those type discretionary distribution requests.
- Language exists to give context for making discretionary distribution requests such as "consider other sources of income" or "based on their current standard of living."
- The HEMS standard (see definition above) for Health and Education is very easy for a corporate trustee. The definition of Maintenance and Support. Think of Maintenance as a Need and Support as a Want. Any description around the grantors intent of defining Maintenance (e.g., Need) and Support (e.g., Want) would reduce the cost of making discretionary distribution decisions because it reduces the risk and time of making the decision.
Chose a Top Bank Trust Company
The first decision starts with do you need a bank trust company in the first place. If you do, then follow this logic decision train:
- Should they manage money?
- Should they be in my state or in the best trust law state?
- Should they manage trust investments like a traditional trust company or should they be an independent trust company providing only trust adminitrative duties?
- Why do they exist? All trust companies do the exactly the same thing. Why they do what they do will make all the difference and tune-out the marketing noise.
- What are they not good at? No company, not even Apple, is great at everything. Ask how and why they narrowed down their trustee services.
- What are there 2 to 4 core values that if all employees do not exhibit, including the C-Suite or founders, then they are let go?
If a traditional company focuses on their investment performance or their age or size then something is amiss. Think about it. Any best trust company knows that operating in a commodity type vertical means the differences are in the process and the people. By people, I do not mean the smartest or best educated but those who show empathy, adaptive to change, growth oriented, a can do attitude and open/honest/vulnerable. The people are the secret sauce. Not the size, age or largeness of the brand of a top trust company.
Top Trust Situs and Laws by State
America has 50 different trust laws. No other country has more than one trust law as trust laws fall under the federal government. In America, trust law falls under state governments.
When the 13 colonies were negotiating with each other to form a union of states, they wanted to retain some form of taxing authority. The major source of wealth, back then, was property. Property fell under state law and the ownership of that property. Since revocable and irrevocable trusts existed by then, trust law fell under the power of state law along with property rights and taxing authority.
There are 7 great top trust situs and law states. They are in alphabetical order:
- Alaska (seasoned, scrappy and weird)
- Delaware (old and lazy)
- New Hampshire (new kid)
- Nevada (seasoned and scrappy)
- South Dakota (seasoned and scrappy)
- Tennessee (new kid)
- Wyoming (new kid and scrappy)
These seven states offer the most control and choice for grantors, beneficiaries and financial advisors. You can live in Michigan and use the trust laws of Nevada as long as the trust administration and trust company are based in Nevada. A Texas resident can create a South Dakota trust, with assets based in New York and New Mexico, with the trust adminstration done in South Dakota along with the trust officers who would follow South Dakota trust law.
Which state you choose, and if you want to separate the investments from the trust administration, chose a trust situs and law based on your needs and not the limited choices offered by the 43 other states.