(May 21, 2012)
An Interview with Chip Martin, Co-Founder of Concord Trust Company
Chip addresses some of the frequently asked questions about Directed Trust Administration, Modern Trust Law, and how Concord Trust Company can help.
High net-worth families face an ever increasing set of challenges managing their wealth across generations. Do you see any trends in how to address these challenges?
You're right. Major changes in trust law, combined with modern investment strategies, new tax factors and complex family and financial advisor dynamics, have created demands that traditional trusts and trust companies are not well equipped to handle. As a result, many families are moving away from conventional trusts that rely on single or co-trustees to new "multi-participant" trusts, which leverage a team of specialized advisors. These participants are granted specific powers by the trust based on their skills, location or past relationships. At CTC, we believe that for certain families this approach is a significant advance over the traditional unitary trust model, where single or co-trustees lack either the in-depth expertise or the appetite for risk needed to effectively manage the gamut of issues that many trusts face.
Many Wealth Managers and Investment Advisors (RIAs) find that accounts and assets shift away from them and to successor trustees when their client dies. Is there an opportunity for RIAs to retain some of those relationships by using CTC?
You are right. RIAs spend years developing close relationships with their client families. If the assets shift to a successor corporate trustee when the client dies it is very difficult to maintain relationships and business with the beneficiaries. Indeed in many cases, the family would rather keep their long-standing relationship with the RIA, but can't because the new successor trustee is required to use an affiliate of its own company for investment services.
This scenario is not only stressful to the family and beneficiaries but also results in a reduced asset base and associated loss of revenue for the RIA.
A NH directed trust is a common solution to this conundrum. In such a trust, a grantor or beneficiary can assume the role of fiduciary investment advisor and then contract with the wealth manager for investment management services. Concord Trust, as
Directed Trustee, is not responsible under the laws of NH for investment decisions, those responsibilities lie with the investment advisor named by the trust. This is what gives the grantor or beneficiary the flexibility to choose the wealth manager or managers of their choice. It also eliminates the fiduciary risk on Concord Trust Company which in turn allows us to keep our fees in check and avoid crowding out the fees the money manager may charge. Naming Concord Trust Company as Directed Trustee provides a flexible, cost-effective and client-centric means for a family and its RIA to maintain their investment advisory relationship after the client passes away.
Our model contrasts with a traditional, bundled-service trust companythat forces its own investment management services onto the trusts it administers, and which, because of its legal and tax nexus, is unable to offer clients the favorable trust environment of New Hampshire.
Earlier you mentioned major changes in trust law. Do all states have basically the same trust laws?
In a word, no. Just as each state has its own tax laws, each state also has its own trust law. As with most legislation, trust and tax law changes continuously, and a handful of states compete with one another as to which is the most "trust friendly." In addition to having specialized trust laws that support privacy, asset protection, special purpose trusts, and tax minimization, New Hampshire has a court system with a solid track record of supporting these statutes and processing cases efficiently. Examples of other advanced states are Alaska, Delaware and South Dakota..
Many retirees move to a specific state for financial or quality of life reasons, but many would rather stay where they are. Does a client have to live in or move to NH in order to take advantage of its favorable trust and tax laws?
Using Concord Trust Company as administrative or "Directed Trustee" typically qualifies a trust as a NH trust. The family (grantor or beneficiaries) does not need to move to New Hampshire. CTC operates essentially in the background, taking instructions from families and their advisors, such as investment managers and people entrusted to make discretionary distribution decisions, and implementing the provisions of the trust.
What makes Concord Trust Company different from the many other NH-based trust companies?
CTC is the only trust company in NH offering pure Directed Trust services. Because we do not offer investment management or investment placement services, we have no agenda other than to provide families with seamless trust administration services. We are experts in trust administration and provide a turn-key method to take advantage of the friendliest and most flexible trust and banking laws in the country.
Of course, like other states, there are many other traditional, bundled service trust companies operating in our local markets. The difference between us and them though is our focus on and knowledge of New Hampshire's specialized trust laws and the fact that we only do trust administration – we do not manage money. Other trust companies in New Hampshire typically lead with wealth management services, with trustee services as an ancillary service. Families don't have to worry that we will try to cross-sell other financial services to them.
Finally, because our partners have been directly involved in writing New Hampshire's trust laws, we truly have a depth of knowledge and expertise in NH trust law, and operate at the forefront of innovation in trust operations.
It sounds like an interesting proposition. For families who are interested in New Hampshire as their trust jurisdiction, how would they actually go about using your services?
The "How To" varies depending largely on the families goals and, in the case of migrating existing trusts to NH, the trust's provisions and current governing law.
For newly created trusts, accessing all of the benefits for a non-resident settlor is almost always as simple as providing in the trust agreement for the appointment of a New Hampshire resident trustee and requiring that New Hampshire law will govern the trust's administration.
For an existing irrevocable trust, moving it to New Hampshire can fall anywhere on a spectrum from simple to complex and first depends on the original trust state's laws.
Often, it can be as simple as having the existing trustee resign and be replaced by Concord Trust Company as a New Hampshire resident Directed Trustee. Consultation with qualified counsel is critical at the outset to determine whether moving without adverse tax consequences is possible and can achieve any given set of migration objectives.
Is there a minimum amount of assets required to take advantage of New Hampshire's advantageous trust laws?
The Short answer is No. Setting up a trust usually comes from a family's desire to protect its wealth over the long term.
We serve both clients with traditional portfolios of marketable securities and clients with special assets, like property, or positions in closely held businesses or LLCs.
New Hampshire's trust- friendly laws protect these assets from the destructive effects of litigious beneficiaries, divorce risks, the prying eyes of the public, or in some cases the long-term erosive effects of state income and federal estate taxes.
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