As the recovery from the 2008 recession continues, more Americans are reaching significant levels of wealth. As more people have more money, there is a demand for more places to secure that money for future generation's use.
In the United States, citizens are allowed to put their money into trusts, where the money is safe from estate taxes and cannot be spent unless the terms of the trust are adhered to. These trusts delineate when and to whom the money is eventually distributed, and laws are created and amended to make the use of trusts more popular.
But wealthy Americans do not always take advantage of trusts, and when they do, they don’t “trust’’ banks or trust companies to handle the account for them, choosing instead to “self-trustee.”
Spectrem’s fourth-quarter study on where affluent investors place their assets analyzed trust usage and found further proof that corporate trustees are not being employed to handle these long-term investment vehicles.
“Spectrem does a great deal of research on the trust market, and we find that as much as wealth grows in the U.S., the trust market remains stagnant, which is unexpected,’’ said Spectrem president George H. Walper Jr. “Our research shows that with greater wealth comes greater use of trusts, but that there is not a corresponding greater use in corporate trustees.”
Spectrem’s Affluent Market Insights showed that at the start of 2016, there were almost 30 million Americans with a net worth (not including primary residence) above $100,000. There were more than 10 million Millionaires and there were more than one million Ultra High Net Worth Americans with a net worth over $5 million.
However, Spectrem’s Trust Update for 2016 showed the number of managed personal trust accounts declined, a trend that has been consistent since the recession.
According to the Spectrem study Asset Allocation, Portfolios and Primary Providers, 44 percent of UHNW investors had assets held in the legal structure of a trust. Of that 44 percent, only 9 percent use a corporate trustee to manage those funds.
This is an indication that advisors who are with a firm that handles trusts need to do a biter job presenting the reasons why an investor should consider a corporate trustee.
As might be expected, a higher percentage of older investors have a trust (48 percent of World War II investors) but what might not be expected is that 32 percent of Millennial and Gen X UHNW investors use a corporate trustee. Is the market improving among younger investors? With successful Millennials scooping up increased wealth in this country, advisors should consider promoting trusts to younger clients.
Among Millionaire investors, those with a net worth between $1 million and $5 million, only 24 percent have a trust, and only 9 percent use a corporate trustee. Again, the Millennials (33 percent) and Gen X investors (35 percent) are more inclined to hire a corporate trustee.
It is worth noting that in the study, the most often-cited reason investors do not use a corporate trustee is that their advisor told them not to (28 percent of Millionaires who have a trust said their advisor Recommend them not to use a corporate trustee).
The other reasons given were that it is too expensive (20 percent), the investor does not believe they have enough assets to warrant a corporate trustee (19 percent) and they don’t believe a corporate trustee has the interests and motivations of the grantor in mind (18 percent).
Top Takeaways for Advisors
Corporate trustees have some valid services to provide, and can be a good idea for investors who do not have the time to maintain personal involvement with their trusts or have someone they know to do the job. On those occasions when the positives outweigh the negatives for an investor, be prepared to offer suggestions on which corporate trustee to use.
If your firm offers trustee services, you must prepare to battle the negative opinions affluent investors have against corporate trusts.
©2017 Spectrem Group