Trusts have been a preferred financial vehicle for affluent families for generations. With their roots stretching all the way back to the needs of twelfth and thirteenth-century Crusaders in England, trusts were used as a way to entrust their lands to a friend or family member, with legal right to reclaim them upon their return from crusading.
Modern trusts function in much the same way. A trustee watches over—and technically owns—money or property for the benefit of another person or persons (beneficiaries). Over the centuries, our legal systems and institutions, such as banks, have assumed and formalized different roles and duties of the trust. Fast forward to today, and trusts perform an important service just as they did 800 years ago.
Currently, over half of UHNW investors report having a trust, and that percentage rises as wealth-levels rise. There are many financial events and situations that often set off the creation of a trust, and you never know when one of these might occur with your client. Many advisors to the wealthy have not recommended trusts to their clients, even when appropriate circumstances arise, because they are unfamiliar with trusts. They may also fear losing control of assets under management, as well as influence with their client.
These advisors should understand that a trust is merely a “container” of assets and that those assets can and probably should remain under the management of you, the advisor. When a trust is created, assets are merely shifted from one container (owned by your client) into another (entrusted to your client’s daughter or an institution as trustee, for example). Management of assets can remain the same, as well as the investment vehicles.
Seek advice from a trusted colleague, with knowledge of how to set up trusts. Strategic partnership with a trust attorney is recommended. Because the chances are extremely likely that UHNW clients will want or need trust advice and services in their lifetime, advisors should be ready with advice. Not being able or willing to recommend a trust when appropriate vehicle, such as a trust, could cost an advisor more than just the assets in that trust. In the long run, client trust can be lost, as well as the client’s business.
Another issue to contemplate is when a trust is necessary for a client. Being able to recognize the situations that trigger a need and being able to foresee these events in the arc of your client’s life will be very helpful to you and, most importantly, your client. It will help create a stronger advisor-client relationship, and true holistic wealth management.
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High Net Worth Advisor Insights Newsletter April 2008
