America’s Most Advisor-Friendly Trust Companies Showcase - Flipbook - Page 20
2026 AMERICA’S MOST ADVISOR-FRIENDLY TRUST COMPANIES
management fees. The trust company
earns its own fee for handling
everything else: accounting, custody (if
required), reporting, and payments to
the beneficiaries.
If the IRS needs to inspect the books,
the trust company handles it. If one
of the people named in the trust
documents has a special request, the
trust company handles it.
This frees up both trustee and
investment advisor to do what they do
best, aligning the interests of all service
providers with those of the grantors and
beneficiaries themselves.
DIVIDING UP RESPONSIBILITY
A true directed trust arrangement
is created when the person who is
initially transferring the assets decides
to require or “direct” the trustee to
delegate the investment responsibilities
to a registered investment advisor,
stockbroker, financial planner, or other
family advisor.
In these cases, the trustee’s fiduciary
responsibility for the investments is
formally reduced to the point where
he or she is exonerated from all liability
except in circumstances involving willful
misconduct. Some states have slightly
stricter requirements that force directed
trustees to double-check that the
advisor’s decisions are truly suitable,
while others take a more laissez-faire
approach.
For most practical purposes, although
the trustee retains some continuing
liability for investment performance,
in a directed trust arrangement,
that is close to zero. Directed trust
statutes formally define the separate
duties and responsibilities of trustee
and advisor. Both are appointed as
fiduciaries, even if the advisor is not
normally engaged in a fiduciary role.
This separation of duties is known
as “bifurcation” in industry marketing
jargon.
NOT ALL STATES ARE
CREATED EQUAL
You need to find a trust company
partner that can work with your clients
wherever they live. However, anyone
from any state can set up a trust in
any jurisdiction, so no advisor should
feel constrained by what’s available at
home. Recent trends have led wealthy
families and individuals to seek out
the most favorable environments for
their assets, changing residences
as tax laws shift. Because of this
development, many large family offices
are opting for maximum flexibility when
the time comes to decide where to set
up the new trust.
In addition, family needs change from
generation to generation. Even if the
prospective trust grantor doesn’t
need a particular tax benefit or class
of protection at the moment, these
advisors know that circumstances
change. And since multiple generations
may be part of the equation, the
trust must be able to evolve with the
family’s needs. Against this backdrop,
many advisors look for a combination
of factors when searching for a trust
company:
Perpetuities. Conventional trusts
can expire a few decades or maybe a
century after the original grantor dies,
but many states allow property to
remain in trust for many generations
longer than the standard state, and in
some cases, forever. These perpetual
trusts or dynasty trusts are a very
popular technique for planners and
clients today.
Favorable tax rules. Avoiding state
income or capital gains tax is another
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key objective for planners to achieve for
their clients. Alaska, Florida, Nevada,
New Hampshire, South Dakota,
Texas, Washington, and Wyoming do
not impose an income tax on trusts.
Delaware does not impose an income
tax on trusts if the income or capital
gains are accumulated or distributed
to nonresident beneficiaries. For locally
domiciled trusts, there are varying
degrees of protection from the trust
creator’s creditors.
Although the language can be so
vague as to be useless in court,
jurisdictions such as Nevada and
South Dakota have a rich body of
statutes in place designed to shield
property from legal claims.
Total return trusts. Many states
have enacted total return trust or
power-to-adjust statutes. Trustees in
these states can now invest based
on a total return approach and satisfy
beneficiaries who receive either
a share of current income or the
principal at a later date. Most states
with total return trust legislation have
the ability to convert a trust to a
unitrust percentage of between 3%
and 5%.
Delegation. Needless to say, you
want a trust provider that operates in
a state that allows an outside advisor
to manage the portfolio. But this
requirement is not quite as intuitive as
it initially seems. Review state statutes
permitting segregation of duties to
make sure that the trustee will provide
exactly the level of supervision you find
comfortable—neither more nor less.
Privacy. Most states have methods
for ensuring that fiduciary affairs will
not be a matter of public record,
although some are stronger than
others. However, state laws differ
