Arden Trust Company, which has existed in its current guise since a corporate spin-out in 2019, works with clients to offer a range of different trust structures. We took the chance to ask the firm how concerns about estate taxes and other issues are framing conversations.
At a time when affluent and high net worth clients use trusts of all kinds to protect wealth, investment advisors must manage money in ways that fit the trusts landscape. Amid the likely end of current estate tax exemptions and worries about higher taxes on the wealthy, trusts are in the front line.
A US business with a particular angle on the intersection of trusts and investment management is Arden Trust Company, a firm that was renamed in January 2019 from the old Reliance Company of Delaware after its previous owners spun out the personal trust business. (They kept the corporate trust business.)
Arden’s business model is built to work with any of the roughly 300,000 financial advisors across the US. Now, it works with about 2,500 financial advisors.
“Our sales model leverages the financial advisors across the country,” Doug Sherry, president of Arden Trust Company, said in an interview. “When they come across a trust opportunity, they need someone to serve as the trustee; that’s where Arden Trust Company comes in – we serve as the trustee and delegate our investment management responsibilities back to the financial advisor who referred the business to us.”
“We are a limited trust company with full trustee powers,” Sherry, who joined the firm in June 2021, said. (He replaced the retiring president, Michael Roberts.)
Arden Trust Company outsources its investment management responsibilities to a variety of financial advisors at independent RIA firms and wirehouses.
Trusts and taxes
In the interview with FWR, Sherry discussed the range of trusts that exist in the US and the possibility of higher or different taxes against a potentially challenging financial and political background. (This news service has examined the trust “toolkit” that exists, with all the variations, here and here, among other places.) The trusts landscape is also noted for the importance of certain US states, such as New Hampshire, South Dakota, Delaware, Nevada and Alaska.
There is a great deal of activity around the lifetime exemptions for estate and gift taxes in the US. The current exemption of almost $13 million for an individual, or $26 million for married couples, runs until the end of 2025. People need to take advantage of the exemption now, otherwise, unless Congress acts before January of 2026, the exemption will drop back to $5 million plus inflation since 2017, Sherry explained.
One option that people consider, he said, is the Spousal Lifetime Access Trust, or SLAT. “We expect a ton of these to be written,” Sherry said. SLATs allow people to use the current exemption amounts before they expire in 2025.
Another tool is the legacy trust.
“We are seeing more legacy trusts getting created with a family business as part of it,” Sherry said.
Implementing tax and estate planning is crucial otherwise businesses and the jobs they sustain, could be on the line.
“People want to pass family business to the next generation without the burden of estate taxes – which could result in a partial or full sale of the business to create the liquidity needed to pay the taxes,” Sherry said. “Taxed income goes into the trust but can grow and pass to the next generation without additional estate taxes applying.”
Legacy trusts are typically operated from South Dakota, Delaware and Nevada due to the liberal statutory provisions in those states.
The use, and advice for these trusts depends in large part on the sophistication and knowledge of a client’s legal and financial advisors. Sherry said attorneys and other advisors work with Arden Trust to meet their clients’ needs and address their planning requirements.
“They [advisors] will come to us to serve as a trustee,” Sherry said, noting that not many attorneys have trust powers themselves.
When it comes to building and using trusts, tax is a motivation, as is philanthropy and a desire to pass wealth on responsibly.
Sherry gave the examples of how Warren Buffett spoke about the creation of “Incentive Trusts.” While he wasn’t the “originator” of these types of trusts, Buffett’s comments about them, made them very popular. (Note: Arden doesn’t work with Buffett.)
An incentive trust is one that essentially matches a beneficiary’s salary – thus the incentive to work and be a productive member of society. A grantor can also include provisions for a beneficiary who works in a typically low-paying field, but one which provides social value – such as a schoolteacher or a social worker – so the trust pays out multiples on the beneficiaries earnings.
Threats of higher taxes and reduced thresholds create much concern for many individuals and families because a lot of wealth is tied up in illiquid businesses, not in liquid wealth, Sherry said.
“There’s a lot of concern about estate taxes…there’s a lack of faith among wealthy individuals that Congress will extend the [exemption] figures in place,” Sherry added.