Are Todays Trust Platforms Relevant to Individual Trustees

Are Today’s Trust Platforms Relevant to Individual Trustees? FIRMA 22 nd National Risk Management Training Conference Chris Heilmann, Chairman & CEO – Merrill Lynch Trust Company Orlando, FL - April 8, 2008

Agenda Ø The Trends Ø The Opportunity Ø The Decisions - Choosing A Trustee - Choosing a Provider Ø An Example of a Fully Integrated Offering Ø Managing Risk in an Integrated Environment 1

The Trends…. From a Transactional Focus… Twenty five years ago, clients were focused on: Ø Protection in the event of incapacity Ø Bill Payment Services Ø Timely income and principal distributions Ø Principal preservation Ø Understanding their statements 2

The Trends…. . To an Advice and Solutions Focus Today, trust clients are interested in: Ø Establishing and achieving their goals Ø Aligning the right team to meet their needs Ø Designing wealth transfer strategies Ø Family educational programs Ø Philanthropy and passing on family values Proactively managing assets to meet tax challenges; managing concentrated positions Ø 3

The Trends Two important industry trends – Ø Increase in non-bank providers Ø Increase in the use of individual trustees 4

The Trends Non-bank providers of trust services have exploded in the past ten years Ø Full Service Brokers Ø Independent Financial Advisors Ø Attorneys and CPAs Ø Independent and Private Trust Companies Ø Insurance Companies There are nearly 600 non-bank trust companies in the U. S. (Tiburon Strategic Advisors, June 2005) 5

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 Ø Approximately 84% are held in the top 25 institutions Ø (Spectrem. Group’s 2007 Update of Personal Trust Asset Trends Among U. S. Banks and Increasing Opportunities for Successor Trustees) 6

The Trends Increase in the use of individual trustees Ø Wealth < $1 million – 28% have set up a trust Ø 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 (Spectrem. Group’s 2007 Update of Personal Trust Asset Trends Among U. S. Banks and Increasing Opportunities for Successor Trustees) 7

The Opportunity Ø Declining trend in use of corporate trustees by America’s wealthiest households Ø 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 Ø There is nearly $3. 3 trillion in personal trust assets (the number of personal trusts has doubled in the past 10 years) Ø Ø Two-thirds of personal trust assets are held in revocable trusts and one-third in irrevocable trusts (Tiburon Strategic Advisors, June 2005) 8

The Opportunity Compelling Demographic Change Ø 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% Ø Average of a private client (with $1 million+) is over 60 Ø (Source -VIP Forum - US Census Bureau International Database 2006) 9

The Decisions Ø Choosing a Trustee Ø Choosing a Provider 10

Choosing a Trustee The Best Trustee Ø Good common sense / competence Ø Scrupulously honest Ø Right age Ø Time Ø Familiarity with family and family values 11

Choosing a Trustee The Options Ø Individual Ø Family Member Ø Corporate Trustee Ø Co-Trustees Ø Administrative Trustee Ø Professional Trustee Ø Private Trustee 12

The Factors Asset Mix Family Dynamics Ø Investable assets Ø Illiquid assets Ø Closely-held assets Ø Real estate Ø Second marriages Ø Complex families Ø Geographically dispersed Ø Wealth creators vs. younger generations Type of Trust Ø Dynasty Trust Ø Charitable Trust Ø GRAT Ø Private Foundation Ø Estate Administration Choosing a Trustee Other Ø Fees Ø Advisors Ø Control Ø Privacy 13

Choosing a Provider The Corporate Trustee Ø Asset management capabilities Ø Staff turnover Ø Number of relationships per trust officer Ø Proximity of trust office staff to clients Ø Investment performance Ø The “soft issues” – beneficiary education, family events, etc. 14

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 16

A Tiered Approach Managed Agency Discretionary investment management Ø Complete administrative services Ø Special assets Ø Investment Plus ala carte services Self-directed investments Ø Trust investment policy statement Ø Administrative services: P&I accounting, Ø Bill paying, tax preparation, distribution guidance Ø Create Successor Trustee Opportunities Investment Only Ø Trustee directed investments 17

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 Brokerage Platform Open Architecture § § Full brokerage platform and suite of investment options and capabilities Elder Care Services via alliance § Valuation services § Marketing materials Brokerage with ala carte Trust Services § Inclusive of Brokerage Platform with Control and Customization § P&I Accounting § Fiduciary Tax Preparation § Bill Payment Services § Directed Distributions § Valuation services § 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 § § § 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 18

Managing Risk Ø Taking a “holistic” approach – LARC Process Ø Risk Management Operating Committee / Board Ø Training - Embedding Risk Management in your Culture and Fabric Ø 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. Ø 19