Transcript No Slide Title

Are Today’s Trust Platforms Relevant to Individual Trustees?
FIRMA 22nd National Risk Management Training Conference
Chris Heilmann, Chairman & CEO – Merrill Lynch Trust Company
Orlando, FL - April 8, 2008
Agenda

The Trends

The Opportunity

The Decisions
- Choosing A Trustee
- Choosing a Provider

An Example of a Fully Integrated Offering

Managing Risk in an Integrated Environment
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The Trends….From a Transactional Focus…
Twenty five years ago, clients were focused on:

Protection in the event of incapacity

Bill Payment Services

Timely income and principal distributions

Principal preservation

Understanding their statements
2
The Trends…..To an Advice and Solutions Focus
Today, trust clients are interested in:

Establishing and achieving their goals

Aligning the right team to meet their needs

Designing wealth transfer strategies

Family educational programs

Philanthropy and passing on family values
Proactively managing assets to meet tax
challenges; managing concentrated positions

3
The Trends
Two important industry trends –

Increase in non-bank providers

Increase in the use of individual trustees
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The Trends
Non-bank providers of trust services have
exploded in the past ten years

Full Service Brokers

Independent Financial Advisors

Attorneys and CPAs

Independent and Private Trust Companies

Insurance Companies
There are nearly 600 non-bank trust companies in the U.S. (Tiburon
Strategic Advisors, June 2005)
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The Trends
Impact of Market Consolidation
Approximately two-thirds (64%) of all institutional
personal trust assets are held in the top 10 banks /
trust companies

Approximately 84% are held in the top 25
institutions

(SpectremGroup’s 2007 Update of Personal Trust Asset Trends
Among U.S. Banks and Increasing Opportunities for Successor
Trustees)
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The Trends
Increase in the use of individual trustees

Wealth < $1 million – 28% have set up a trust

Wealth > $ 1 million – 42% have set up a trust
80% of these trusts have Individual Trustees!
Primary reason (53%) – WANT TO MAINTAIN
CONTROL OF ASSETS
(SpectremGroup’s 2007 Update of Personal Trust Asset Trends
Among U.S. Banks and Increasing Opportunities for Successor
Trustees)
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The Opportunity

Declining trend in use of corporate trustees by America’s
wealthiest households

A vast majority of UHNW households use a family member
as a trustee

Baby boomers are getting into the estate planning process
earlier than their parents and are better informed

There is nearly $3.3 trillion in personal trust assets (the
number of personal trusts has doubled in the past 10 years)

Two-thirds of personal trust assets are held in revocable
trusts and one-third in irrevocable trusts
(Tiburon Strategic Advisors, June 2005)
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The Opportunity
Compelling Demographic Change
 Over next 2 decades, 1 in 4 Americans will be
age 60+
2000–2010, the number of individuals 85+ is
expected to rise by over 43%

Average age of a private client (with $1 million+)
is over 60

(Source -VIP Forum - US Census Bureau International Database
2006)
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The Decisions

Choosing a Trustee

Choosing a Provider
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Choosing a Trustee
The Best Trustee

Good common sense / competence

Scrupulously honest

Right age

Time

Familiarity with family and family values
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Choosing a Trustee
The Options

Individual

Family Member

Corporate Trustee

Co-Trustees

Administrative Trustee

Professional Trustee

Private Trustee
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The Factors
Asset Mix
Family Dynamics
 Investable assets
 Illiquid assets
 Closely-held assets
 Real estate
 Second marriages
 Complex families
 Geographically dispersed
 Wealth creators vs.
younger generations
Type of Trust
 Dynasty Trust
 Charitable Trust
 GRAT
 Private Foundation
 Estate Administration
Choosing a
Trustee
Other
 Fees
 Advisors
 Control
 Privacy
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Choosing a Provider
The Corporate Trustee

Asset management capabilities

Staff turnover

Number of relationships per trust officer

Proximity of trust office staff to clients

Investment performance

The “soft issues” – beneficiary education, family
events, etc.
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Targeting the Individual Trustee
Investment
Advice
Principal & Income
Accounting
Tax
Preparation
Needs of the
Individual Trustee
Advice and
Guidance on
Distributions
Investment
Management
Charitable
Valuations
15
Choosing a Provider
The Individual Trustee
Investment Only
Model
Managed Agency
Model
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A Tiered Approach
Managed Agency
Discretionary investment management
 Complete administrative services
 Special assets

Investment Plus ala carte services
Self-directed investments
 Trust investment policy statement
 Administrative services: P&I accounting,
 Bill paying, tax preparation, distribution guidance

Create
Successor
Trustee
Opportunities
Investment Only

Trustee directed investments
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An Example of a Fully Integrated Trust Offering
Tailored solutions to coincide with client need…
Self-Trustee Solutions
Corporate-Trustee Solutions
Trust Co. as
Corporate
Fiduciary

Full suite of trust
administrative,
investment
management,
and fiduciary
services for
personal trusts

Trust Co. acts as
fiduciary
investment
manager and
trustee / cotrustee

IRA Custodian or
Trustee

Estate Settlement

Philanthropic
Planning and
Services

Delaware Trust
Structures
Managed Agency
Services
Brokerage with
ala carte Trust
Services
Brokerage Platform
Open Architecture


Full brokerage
platform and suite of
investment options
and capabilities
Elder Care
Services via
alliance

Valuation services

Marketing materials

Inclusive of
Brokerage Platform
with Control and
Customization

P&I Accounting

Fiduciary Tax
Preparation

Bill Payment
Services

Directed
Distributions

Valuation services



Investment
Management with
Fiduciary
Investment
Offerings
Trust Co. serves as
Agent for individual
trustee(s) or
personal
representatives
Full Administrative
Services as Agent
for the fiduciary
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Managing Risk

Taking a “holistic” approach – LARC Process

Risk Management Operating Committee / Board

Training - Embedding Risk Management in your
Culture and Fabric

Involving the client as a “member” of the Risk
Management Team

Delicate Balance – To deliver sophisticated
products and services for our clients…and to
manage risk and jealously protect our integrity
as fiduciaries.
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