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When there is disruption or uncertainty, there is a natural urge to seek shelter elsewhere. While it may be prudent for a United States citizen or green card holder to diversify an investment portfolio by increasing exposure to foreign markets, moving financial assets overseas comes with significant challenges and potential pitfalls.
The first challenge will be finding an institution that is willing to open an account. Most foreign jurisdictions have onerous “know your client” and anti-money laundering rules (often more so than the United States) and are therefore reluctant to open accounts for nonresidents. Additionally, most foreign governments have agreed to report any accounts held by U.S. persons to the U.S. government, as stipulated by the U.S. Foreign Account Tax Compliance Act, or FACTA.
Any U.S. person (see the definitions in sidebar “Them vs. U.S.: The IRS”) who owns or controls one or more foreign financial accounts with more than $10,000 (in the aggregate) at any point during the year must file a Report of Foreign Bank and Financial Accounts – also known as an “FBAR” – with the Financial Crimes Enforcement Network, or FinCEN, on an annual basis. The civil penalty for failure to file, if non-willful, is up to $10,000 per return, and it can be up to the greater of $100,000 or 50% of the account balance if the failure is willful. In addition, criminal penalties may include fines and imprisonment.
U.S. persons may also need to file a Form 8938 (Specified Foreign Financial Assets) with their tax return to report assets over a certain dollar amount based on tax filing status. For those married filing jointly, the total value of assets must be more than $100,000 on the last day of the tax year or more than $150,000 at any point. Penalties for failure to file are up to $10,000, with an additional $10,000 for each 30 days of non-filing after receiving notice, and a potential maximum penalty of $60,000.
U.S. persons are taxed by the United States on their worldwide income, in addition to any tax imposed by the country where they or their assets are located. While many countries have a tax treaty with the United States that prevents or minimizes double taxation, there may be mismatches in tax type or timing that prevent the taxes from offsetting each other. In addition, the United States taxes U.S. persons on certain foreign assets, such as foreign mutual funds, under the punitive passive foreign investment company regime.
If a U.S. person transfers funds to an offshore trust, they will be treated as the owner of that trust for income tax purposes in any year that there is a U.S. beneficiary, meaning that the tax treatment would be the same as if they held the assets in their individual name. The U.S. owner of a foreign trust must also file Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) and must ensure that the foreign trust files a timely and accurate Form 3520-A (Annual Information Return of Foreign Trust with a U.S. Owner), which is then attached to the owner’s Form 3520.
It also should be noted that certain foreign retirement plans or accounts are categorized by the United States as a foreign trust arrangement and therefore trigger Form 3520 filing requirements. Penalties for failure to file a Form 3520 for ownership of a foreign trust are significant, generally equal to the greater of $10,000 or 5% of the gross value of the trust’s assets. Additional penalties will be imposed if noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply.
Moving assets abroad requires significant consideration and planning. Please contact your Evercore Wealth Management and Evercore Trust Company advisors to discuss your plans.
The term “United States person” means:
A “foreign person” includes:
Trusts are a central part of an overall estate plan for many families. One of the most important decisions is identifying someone to carry out this plan – to stand in your shoes when you are no longer able. Just as an estate plan is designed to take care of the family, so should be the choice of both a personal and a corporate fiduciary. It is not a decision that should be entered into lightly, but only after careful consideration of all the options.
Appointing a close friend, business associate or family member as a trustee is a natural inclination. After all, that person knows the family. But age and potential conflicts need to be considered. For how long will the friend be able to serve in the role? Will the appointment of a long-term attorney or accountant be worth having to replace them in their existing role? And who among the next generation is ready to take on the responsibility? It is rarely a good idea to appoint one child to serve as trustee for one or more siblings. That could cause lasting damage to their relationship and to the family, including subsequent generations. (There are cases, such as with special needs, in which a sibling trustee can make sense.)
In any case, it’s a big ask. A friend, associate or family member may be the best choice. But without the right support, it still may not work out as either the grantor or the individual trustee hopes.
Here are three reasons to additionally name a corporate fiduciary, to work alongside the personal individual trustee.
Supporting the personal trustee:
The personal trustee has agreed to take on a significant responsibility, and you’ll want to do what you can to ease that burden, including ensuring that it doesn’t extend beyond the individual trustee’s own professional or personal capacity. The personal trustee can count on the corporate trustee for expert guidance and important objectivity in meeting the family’s financial goals, and ensuring that all tax, administrative, and other reporting requirements are met and that the assets are prudently protected. A corporate trustee is held to a higher fiduciary standard than an individual in discharging these responsibilities.
Supporting the family:
A corporate trustee can help manage illiquid or unusual assets, like a family-owned business, shared real estate, or valuable collections. A corporate trustee can also act as an impartial mediator when there are conflicting goals among family members, making sure that the trust works for the benefit of all beneficiaries. Independence also allows a corporate trustee to have more flexibility and authority without adverse tax consequences.
This flexibility is especially important when a trust is expected to last multiple generations – it is impossible to plan for every eventuality in the trust instrument, so flexibility is key. On a related note, beneficiaries should have the ability to remove and replace the corporate trustee to meet their evolving needs.
Supporting the individual:
Naming a corporate co-trustee as successor trustee provides an additional layer of protection in the event that you become incapacitated or otherwise unable to manage your own affairs. A corporate trustee of a revocable trust can immediately step in to manage assets and make distributions for you or your family’s benefit. This can be particularly seamless if they are already serving as custodian or investment advisor. Having a successor trustee named and ready to act can also provide peace of mind that the plan will be carried out as intended. Corporate trustees are bound by fiduciary duty and subject to oversight by state and federal regulators. They are held to the highest fiduciary standard and have a duty to act in the sole interest of the beneficiaries while carrying out the intent of the benefactor.
In short, a flexible and empathetic corporate trustee can support the efforts of the personal trustee, working alongside family members and other advisors, providing both independent advice and collaborative decision-making. A well-drafted estate plan can ensure that nothing is set in stone by incorporating flexibility for the future, allowing beneficiaries or another power holder to remove and replace a corporate trustee at any time to meet the needs of the beneficiaries.
Alex Lyden is the Chief Fiduciary Officer of Evercore Trust Company. He can be contacted at alex.lyden@evercore.com.
Limited liability companies, limited partnerships, and other closely held entities, including certain business trusts, must now identify and report all beneficial owners to the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury.
A beneficial owner is any individual who directly or indirectly exercises substantial control over the entity or who owns or controls at least 25% of the ownership interests in the entity.
The Corporate Transparency Act, or CTA, came into effect on January 1, 2024. It is designed to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity. CTA reports are not accessible to the public. The information will be accessible only by specific individuals within the government for law enforcement or supervisory purposes, and to financial institutions to facilitate compliance with customer due diligence requirements. Some states have followed suit and enacted similar laws, including New York State.
Entities formed prior to January 1, 2024, must file by January 1, 2025; entities formed in 2024 generally have to file within 90 days of formation; however, those formed in 2025 and beyond will have to file within 30 days. Subsequent changes to any reported information must also be submitted within 30 days. There are two methods of filing available. The first is to complete the PDF version of the Beneficial Ownership Information Report and upload it on the FinCEN website. The second is to complete and submit the form entirely online. The PDF version requires an extra step, but the benefit is that the PDF can be saved and reused if changes are submitted later. The filing system and additional information can be found here: BOI E-FILING(https://boiefiling.fincen.gov/).
It is important to note that on March 1, 2024, in a case brought by the National Small Business Association, the U.S. District Court for the District of Alabama held that the CTA was unconstitutional because it exceeded the limitations placed on Congress’ legislative authority under the Constitution. On March 11, 2024, as expected, FinCEN filed a Notice of Appeal to the Decision. However, on March 15, 2024, a separate lawsuit challenging the CTA was also filed in the Federal District Court in Maine. It is possible that the fate of the CTA ultimately ends up being decided by the U.S. Supreme Court.
In the interim, penalties for not filing are steep, so please contact your advisors with any questions or concerns. Given the complexities of the CTA and the potential for civil and criminal penalties, it is important to consult with a legal and/or tax advisor to determine the impact of this new law.
Ruth Calaman is a Partner at Evercore Wealth Management and the Chief Compliance Officer and General Counsel of Evercore Wealth Management and Evercore Trust Company. She can be contacted at ruth.calaman@evercore.com.
Any inheritance represents more than the value of the underlying asset, for both the benefactor and the beneficiaries. That’s especially true when the inheritance includes a family business, real estate, a collection, or another precious asset. When the practical and emotional stakes are high, it’s important to seek out objective advice and support.
Special assets are pretty much any asset other than traditional stocks, bonds, or cash. They are often illiquid and complex, requiring specific skills to preserve, manage, and grow. If the next generation or their fiduciary lack the requisite passion, ability, or consensus, then governance cracks can quickly appear. No one wants siblings to end up fighting while a much-loved vacation home falls into disrepair. Or, as one new client family previously experienced, the unexpected incapacity of a business owner resulting in intra-family litigation and a court-ordered wind-down of the business. In short, the set-it-and-forget-it approach to estate planning critiqued by Michael Cozene in the previous edition of Independent Thinking is particularly ineffective in handling these assets.
Families and their personal fiduciaries don’t have to face these challenges alone. Indeed, they shouldn’t. The Office of the Comptroller of the Currency, the government agency that regulates national trust companies, requires that corporate trustees maintain the requisite level of expertise and establish adequate processes and procedures to effectively administer trusts containing special assets. This requirement should be a good standard for anyone asking a family member, friend, or advisor with taking on this important responsibility. Other considerations for existing and potential individual fiduciaries may include the scale of the necessary learning curve in administering these assets and the potential for personal liability. Please see the brief guide to selecting a corporate fiduciary below.
Managing special assets requires sensitivity and flexibility. Assets like these are usually of great emotional – as well as financial – significance to the family. Planning for these assets requires both great communication and specialized knowledge, so that the benefactor’s wishes are respected, and the individuals involved feel that they have been fairly treated. At the end of the day, what really matters is that the assets are managed in the family’s best interests – and that the family remains a family.
Julio Castro is a Partner and Wealth and Fiduciary Advisor at Evercore Wealth Management and a Managing Director of Evercore Trust Company, N.A. He can be contacted at julio.castro@evercore.com.
“Just manage the assets and distribute the income equally to the heirs.” Simple enough, right? Maybe not.
All trusts, especially those designed to last for two or more generations, need to have an element of flexibility to balance the intent of the grantor with the evolving needs of the beneficiaries. Here are some additional considerations in choosing trustees for trusts with special assets.
a. lt takes a team. We usually recommend an individual trustee and a corporate trustee.
i. An individual trustee generally has a long and intimate relationship with the family, ideally someone who shares the values and other qualities of the wealth creator and can serve for a decade or more.
ii. An experienced corporate trustee can protect the assets from theft or misappropriation, making thoughtful investment decisions, ensuring that the trust income is accurately reported and the appropriate tax returns are filed. A corporate trustee can also provide effective financial counsel to heirs.
iii. The right corporate trustee will supplement, not supplant, the individual trustee and other established family advisors.
b. All assets are not alike. Special and shared assets come with unique issues.
i. Lifestyle assets (vacation homes, yachts, aircraft, and the like)
1. Who will pay for ongoing property taxes, maintenance, insurance?
2. Who will manage the property, including any rentals, and coordinate the family’s usage?
3. Who will decide if the lifestyle asset is no longer an appropriate holding of the trust?
ii Family business assets
1. What role does this asset play in the family’s income and diversification?
2. Who will manage the business and who will decide if the business should be sold?
3. How will the business reinvest for growth while maximizing business income?
4. How does the trustee’s decision-making process help or hamper the operation or the administration of the business?
iii. Art, cars, and other collectibles
1. Is the intent to hold the items in perpetuity, or may they be sold over time?
2. How and where will the items be stored and how will the cost of storage, maintenance, and insurance be covered?
3. How are the assets intended to serve the needs of the beneficiaries – i.e., are they held for investment or for personal use?
iv. Other special assets, such as life insurance and digital assets (including cryptocurrency), present other issues.
c. Consider bifurcating trustee responsibilities
i. Trust laws in Delaware and several other states now permit the division of traditional trustee responsibilities among multiple trustees or between a trustee and one or more advisors (such as investment advisors, distribution advisors, and trust protectors).
ii. Control over special assets can be vested in the person with the closest connection to the asset and remaining trustee duties handled by the corporate trustee.
iii. The trustee that is directed with regard to certain assets or duties is generally protected from liability for following directions.
d. Ask the right questions in identifying your corporate trustee team member.
i. What experience and resources exist within the organization to understand the complexity and management of multigenerational trusts and the special assets?
ii. What is the governance structure and process for decision making for routine and extraordinary fiduciary decisions?
iii. Will experienced professionals be assigned to my family for the long term?
iv. Is there redundancy in place to provide continuity of administration, including fiduciary decisions, through vacations, illness, or emergencies?
v. Are third-party professionals engaged to manage complex assets or support family cohesiveness? If so, is there an additional fee?
e. Prepare for the unexpected.
i. Your advisors can recommend appropriate methods to give someone the right to replace your individual or corporate trustee if circumstances change.
Stress tests can actually take the stress out of our biggest, most complex tests. That’s how regulators evaluate financial reserves, community organizations prepare for disasters, and doctors and trainers measure how healthy we are. It’s also how families can prepare for inevitable, potentially sudden change. Stress testing an estate plan can help ensure that – when it really matters – your plans can stick.
What could a gathering of the people named in your estate plan and your advisors reveal? Are there any existing or potential, practical or interpersonal conflicts that can be addressed sooner rather than later, or before it’s too late? Is there sufficient liquidity to pay taxes and meet other pressing needs? Which assets go into which entities? Who will cover any unexpected costs, any outstanding debts? Who will make those and other, often very difficult, decisions? Estate plan stress tests can strengthen family and advisory relationships, clarify roles and responsibilities, and reassure those involved. Everyone will know what to expect, what to do, and who to turn to when the time comes.
Here are brief highlights of some possible findings and solutions.
Family conflict is a significant and increasing challenge in estate planning. There are more blended or otherwise complicated families and, as a result, more potential for differing expectations and disputes over inheritance. This exercise will allow you to think through who would inherit specific assets and, if you own a business, who would manage the business assets. Detailing the plan with the appropriate legal documents and clearly communicating your intentions and wishes can go a long way in avoiding conflict. It’s a good idea to review and update your documents at least every five years or so, or when there is a major life event such as birth, death, marriage, divorce, or the sale of a business.
Many families struggle with how much their kids should inherit and how they will receive it. Certainly, a level of maturity is needed to manage assets and make spending decisions. But even adult children may not have the financial sophistication to handle a large or complex inheritance. A trust can protect assets against any existing and future creditor claims and against failed marriages, provide for family members with special needs, and distribute assets at predetermined ages or other milestones. You can leave assets in a trust for a child’s lifetime and a skilled fiduciary (or co-fiduciary) can help distribute the funds properly and prudently. The principal can also be left in a dynasty trust and benefit multiple generations, subject to the state’s perpetuity rules. See Justin Miller’s article, “Gifting and Letting Go: Emotional and Practical Perspectives,” Independent Thinking, Vol. 45, June 2022.
At present, the annual federal estate tax exclusion is $12.92 million (double that for married couples). The remaining estate will be taxed at the top federal statutory estate tax rate of 40%. More concerning for many high net worth families is that the exemption amount is scheduled to be cut roughly in half after 2025 to an estimated $7 million per person. Federal estate taxes are due nine months from the date of the decedent’s death and must be paid before remaining assets can be distributed. So, it’s important to make sure you have sufficient liquid assets to pay taxes. It is also worth thinking now about annual giving and more significant wealth transfer strategies to minimize that potential tax bill.
Some areas that are often overlooked in trust documents include trustee’s breadth of authority (trustee powers), the beneficiary/beneficiaries of the trust receipts and disbursements (principal and income), and the responsibility for paying the estate tax (estate tax apportionment). This usually becomes relevant when an estate owns private businesses that make uneven distributions to a trust. Make your intention clear; ask the right questions to kick the trust’s tires; and ensure that the trust language is flexible.
A family vacation home can present unique emotional and planning challenges. To minimize family strife, speak individually with each child about their hopes for owning and using the property and how they see family dynamics playing out. Then communicate your decision clearly, whether the property is to be kept in the family or it’s to be sold or gifted to charity.
It’s critical for all family members to understand what will happen next. What are the roles and responsibilities of each member, and who will make specific important decisions? The trustee is charged with the responsibility for managing or administering the trust, and if the trust document is unclear as to the grantor or settlor’s intent, the trustee is left to speculate, which can lead to misinterpretation and potential unintended consequences.
Are the fiduciaries and successor fiduciaries named in your documents still suitable? A fiduciary is an individual or corporation that is essential in implementing your plan and carrying out your wishes, and can include an executor for your will, trustee of your trusts, and agents you name for healthcare and property. Individuals age or quarrel; corporations can merge into others or be acquired. Often the best solution is to appoint a willing and able family member as one fiduciary, and a professional co-fiduciary (such as a trust company) as the other, to manage the assets and handle the administration, recordkeeping, and tax responsibilities.
Stress testing your estate plan can inevitably raise issues that need to be resolved. And there’s no time like the present. The reward should be peace of mind, in the knowledge that you and your family are prepared – and that your hopes for them can be realized.
Michael Cozene is a Partner and Wealth and Fiduciary Advisor at Evercore Wealth Management and Evercore Trust Company. He can be contacted at michael.cozene@evercore.com.
Wealth and Fiduciary Advisors help stress test family estate plans, working directly with your family and your other trusted advisors. While every family situation is unique, the process should include several key steps.
This forum allows the key participants in your plan to enhance their understanding of your unique situation and clarify roles, and it simulates how your plan can play out. From there, your wealth and fiduciary advisor can create a plan of action to help ensure that your goals can be fulfilled.
Julio Castro is a Partner and Wealth and Fiduciary Advisor at Evercore Wealth Management and Evercore Trust Company. He can be contacted at julio.castro@evercore.com.
Each sibling, they say, experiences a different family. That’s true for their parents too, as they watch each of their children grow as individuals, so different from their brothers and sisters, no matter how close in age or how much the parents strive to treat them equally. And just when parents think they have figured out each child, they can change again, as subtle differences in temperament and experiences compound. The valedictorian wants to take a gap year or more to travel with his band; the athlete is injured; a hitherto easygoing child starts to struggle – anything can happen. So how can parents (and grandparents) of more than one child plan accordingly?
This subject – fair versus equal in wealth management – has many important aspects, all worth considering in depth. (See below for links to some of our related recent publications and webinars.) But let’s concentrate here on one potential solution, for parents and grandparents considering their estate planning. A family sprinkling trust, also known as a pot trust, provides a way for grantors to benefit a class of individuals – typically children, grandchildren, and further descendants – assigning funds to a class of people instead of to specific individuals. It’s a pooled family asset, available to each member according to their needs at the discretion afforded to the trustee(s) by the grantor.
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Typically, parents and grandchildren set up a sprinkling trust to make gifts to very young children, who will likely not need to access the trust assets or income for some time. (The trust can also provide for the surviving parent in the class.) While the trust could remain a single pot forever, it will more likely remain collective until the ages by which the children will have likely completed their educations and begun their careers and families of their own. At that time, the trust could be split, or divided into separate trusts – for each child, their descendants, and their spouses – as the grantors see fit. Or the sprinkling trust could remain intact, to accommodate careers with very different earning potential, for example. The investment banker and charity worker are likely to face different challenges – although, again, anything can happen.
In the interim, the trust structure allows a young family to adjust for different and changing circumstances. A child with special needs will almost certainly require relatively more support. But other differences could be appropriate reasons to disperse funds; for example, one child may really benefit from private school while the other is thriving at public school, at least for now.
Sprinkling trusts can be very helpful for blended families, in which children may be spaced farther apart in age. The structure allows for the younger beneficiaries to access funds for education and other needs that may have already been met for the older children. The distribution won’t be equal, but it will be fair. A Connecticut-based couple discovered that recently, when they set up a sprinkling trust for their blended family, with five children spanning seven years in age, two with mild development disorders. The couple decided that a sprinkling trust benefiting the survivor and all the children until the youngest reached 30 years old made the most sense. At the death of the survivor, the balance of the trust (provided the children are all 30) will continue in separate trusts for each of their children and, secondarily, for their children, with the same provisions.
This couple’s trust, like most well drafted trusts, allows for an independent trustee to make discretionary allocations as needed, to protect each member and maintain family harmony. Many families opt to include a Limited Power of Appointment in their planning documents. This allows for the primary beneficiary, say a surviving spouse, to appoint the shares unequally or in different trusts that meet changed circumstances. The situs of the trust is also important. Delaware situs trusts can provide even more flexibility, allowing a specially appointed person (a “trust advisor/protector”) to make changes during the term of the trust that would accommodate needs that were unknown when first drafted.
Trusts also need to be properly managed. Investment and management decisions for a trust designed to serve children and potentially future generations generally shouldn’t be that dissimilar from a thoughtful, sophisticated, goals-based investment process. Risk/return trade-offs, cash flow requirements, and income tax status need to be evaluated much like an advisor would do for individuals. Investment vehicles that were once the preserve of institutional investors can now be used to complement the overall strategy of the trust and to grow wealth as well as to protect it.
Most important, the trust is flexible; it can change as the family’s circumstances evolve, as they surely will. The valedictorian’s band tour could become the start of something big – or an anecdote in a life well lived. And his siblings will have their own – and likely very different – setbacks and successes. The trust needs to be flexible enough to honor its stated purpose, but also the true intent of the grantor, to treat the children fairly. A fully discretionary trust that will last for generations, places a lot of responsibility on trustee(s) now and in the future. Future trustee(s) must be able to carry through the intentions of the grantor(s) in making disbursement decisions across an expanding class that could potentially threaten family harmony.
All told, sprinkling trusts are a good solution for many families. They provide protection for potential spendthrifts, from creditors (including divorcing spouses), and for family members with special needs. They also provide a vehicle that can be sheltered from future federal estate and generation-skipping taxes, subject to very careful consideration.
Finally, keep in mind that the current federal estate, gift, and generation-skipping tax lifetime exemption is now $12.92 million, or double that for a married couple, but is scheduled to revert in 2025 to about $6.2 million, indexed for inflation. Transfer strategies should only be executed in the context of long-term plans, but there is good reason now to accelerate those plans.
Kate Mulvany is a Partner and Wealth & Fiduciary Advisor at Evercore Wealth Management. She can be contacted at mulvany@evercore.com.
Families facing addiction, autism and other physical, mental, and emotional health issues are not alone, even if it can feel that way at first. Over three million children in the United States, or almost 5% of the total, have some form of disability; one in every 44 are now diagnosed with an autism spectrum disorder.1 Millions more young Americans suffer from mental health issues, substance abuse or, often, both. And about 6.5 million people age 65 and older suffer from Alzheimer’s and other related dementias,2 the dark side of the longevity gains addressed in Aging with Attitude (and Gratitude) by Jeff Maurer.
If your family is among these numbers, you don’t need to feel alone, or have to plan or care for your loved one on your own. While every family is as unique as the people and circumstances involved, experienced guidance – and guiding principles – can really help. Here are a few suggestions; please contact your Evercore Wealth & Fiduciary Advisor to learn more and to discuss your specific situation.
Every family with a special needs member needs a support network. In addition to family members and medical professionals, members can include a care manager, educators, therapists and counselors, an attorney, an accountant, and a wealth and fiduciary advisor.
Special needs planning discussions should start early and occur regularly, from diagnosis and as the situation evolves. For some families, comprehensive planning might start with the birth of a special needs child; others will receive a diagnosis later or even much later, when a family member develops cognitive challenges associated with aging. Whatever the timeline, the important thing is to work with your team and start planning as soon as possible.
Your team can help you determine how your family member with special needs can reach their full potential, and how much that will cost. The team will also help you plan for your own and other family members’ needs too. Some of the biggest questions you are likely to have will be around future care, as the primary caregivers age, and how much responsibility other family members can and should assume – and how they can be supported in that.
Families with the financial wherewithal to provide for the care of their loved one may still wish to access government programs, such as Medicaid, the Supplemental Security Income program, and certain vocational or socialization programs that are only offered to those enrolled in these government programs. As improper use of funds can disqualify a special needs individual from benefits, consider establishing a special needs trust and engaging a trustee or co-trustee with a full understanding of government programs, including the strict regulations concerning the use of trust assets. If drafted properly, the use of a special needs trust does not prevent a family from using the assets of the trust or other assets to provide for the beneficiary.
Who will serve as a fiduciary, or co-fiduciary, to counsel the family, provide objective oversight, and balance your wishes with the evolving needs of your beneficiary after your lifetime? Who will work with your other advisors and serve as a single point of contact for your family? Trustees of special needs trusts should have a deep appreciation of the circumstances and aspirations of the beneficiary with special needs, to ensure that the trust will serve its purpose as a positive contribution to the quality of that person’s life, and to the family as a whole. The trustee should be prepared to work with – and often lead – the family’s dedicated team.
There are plenty of resources for the many families with special needs individuals. Wealth can help, as well as add complexity. The right choices for your family should be shaped by your unique goals and circumstances, in close consultation with your team of experienced advisors.
The Evercore Wealth Management and Evercore Trust Company recent webinar Special Needs: Protecting the Whole Family with Wealth Planning explored this topic with our guest Ann Koerner, who founded National Care Advisors in 2008 to provide consulting services for attorneys, financial planners and trustees who support individuals with complex care needs and their families.
Please reach out to your Evercore Wealth & Fiduciary Advisor or contact wealthmanagement@evercore.com to access the replay.
Karen Francois is a Partner and Wealth & Fiduciary Officer at Evercore Wealth Management and the Chief Fiduciary Officer at Evercore Trust Company, N.A. She can be contacted at francois@evercore.com.
Jay Springer is a Partner and Portfolio Manager at Evercore Wealth Management and the Chief Investment Officer of Evercore Trust Company, N.A.; he is also a member of the New York Advisory Board of the Caron Treatment Centers. Jay can be contacted at springer@evercore.com.
Some early investors in cryptocurrency and non-fungible tokens, or NFTs, have accumulated significant wealth. But the extreme volatility and evolving tax treatment of these assets are good reasons to think long and hard about managing them in the context of estate planning. Generational gifting strategies and charitable planning may save on estate taxes and allow for further appreciation of these assets outside of the estate.
But first, how can such volatile and often illiquid assets even be valued for estate planning purposes? It’s an essential step in proper planning, as the inclusion of crypto and NFTs may potentially cause an otherwise non-taxable estate to become taxable. Even with a step-up in basis, there may be income tax considerations. Only a qualified appraiser should make that call, and IRS guidance is still a bit murky as it relates to a qualified appraisal, so please take extra care when dealing with this issue.
It’s worth stressing here that getting tax planning right is critical, and failure to comply even as regulations evolve can have extremely serious consequences, including forcing the use of an additional and unintended gift tax exemption, or even causing there to be tax owed if the IRS determines that the value of the gift exceeds the available exemption.
The custody and security of cryptocurrencies and NFTs present another planning challenge. Striking the right balance between preserving the security of private blockchain keys and other access points now, and providing access for a third-party fiduciary later, isn’t easy. But at the very least, the executor of an estate that includes crypto and/or NFTs will need a road map to help identify, locate, and eventually access these digital assets.
Making gifts during the grantor’s lifetime can generate significant benefits, including the appreciation of the gifts outside of the grantor’s estate. For example, a grantor could gift the assets into an LLC. The manager of the LLC would then have general management and investment responsibilities over the underlying assets. The issue of custody and security cannot be emphasized enough, and the grantor or a very close and trusted third party could serve in that LLC manager role.
The interests in the LLC can in turn be gifted into one or more trusts for the benefit of future generations and/or possibly charities. These trusts can be created as directed trusts in Delaware (or another jurisdiction that allows for directed trusts), utilizing a corporate administrative trustee. In this scenario, the manager of the LLC can also serve as the investment direction advisor to the administrative trustee, directing the administrative trustee to hold the shares of the LLC. While the grantor could be the LLC manager and the investment advisor with responsibility for managing the cryptocurrency or NFTs, the estate tax rules would prevent the grantor from retaining full control as trustee over distributions to trust beneficiaries. In that case, an independent trustee – such as a corporate trustee – could be responsible for following the terms of the trust agreement to determine when and how much to distribute to the ultimate trust beneficiaries.
In essence, in this scenario, the underlying assets have now been transferred to future generations and/or charities, appreciation of those assets will occur outside of the grantor’s estate, and the manager of the LLC and investment direction advisor to the trust retain general management responsibilities and investment control over the underlying assets in the LLC.
The laws and rules governing crypto and NFTs are still evolving, unevenly, across jurisdictions, but as more people hold these assets, it is important that they are considered in estate plans.
Tom Olchon is a Managing Director and Wealth & Fiduciary Advisor at Evercore Wealth Management and Evercore Trust Company, N.A. He can be contacted at thomas.olchon@evercore.com.
Many investors in digital assets are passionate about their prospects. It is important to keep a cool head in planning for their eventual transfer.
– T.O.
Modern family wealth is increasingly mobile, global and entrepreneurial, often sourced in a variety of ways and allocated across a range of traditional and nontraditional investments. Families have lived through tumultuous social, economic and political times, and understand that the future is impossible to predict. Like them, their estate plans have to be adaptable.
While a well-crafted traditional trust, as described by Jeff Maurer here, often makes the most sense for most families, more complex trusts established in certain trust-friendly states can provide enhanced flexibility to those with special circumstances.
Let’s consider some of the key options available in these jurisdictions: bifurcation of trust functions; the ability to retain a beneficial interest in the trust; control over trust information; and flexible options for existing trusts.
A typical trust appoints a trustee with authority for investments and distributions. A directed trust allows for the allocation of those functions to a separate advisor or advisors. There are generally no statutory requirements for or limitations on how these roles are defined, meaning that they can be completely customized to meet specific needs.
For example, a special asset advisor can be appointed solely to oversee a closely held operating business, with the trustee continuing to provide traditional investment management services for the remaining assets. Similarly, a special distribution advisor can be appointed to control distributions for a beneficiary with special needs or substance abuse concerns, with the trustee retaining distribution authority for the remaining beneficiaries. It is also possible to appoint an advisory committee rather than a single advisor, thereby providing opportunities for family members, across multiple generations, to be involved in trust decision making (subject to any limitations on related powerholders under the tax laws).
Directed trust statutes also permit the appointment of a trust protector, who may be given broad powers to oversee the administration of the trust and to intervene when necessary. Common powers given to the trust protector include the power to amend the trust (including dispositive provisions), the power to add or remove beneficiaries, the power to change situs, the power to remove the trustee (and other advisors) and appoint successors, the power to divide, merge, combine or decant the trust, and even the power to terminate the trust early and distribute the assets outright. With perpetual or dynasty trusts that are designed to last for multiple generations, it is important to maintain the ability to modify or adapt the trust to take into account changes in circumstances that may affect the suitability of the original plan put in place for beneficiaries. Vesting those powers in a carefully selected independent trust protector provides continuity of oversight in the event of incapacity or death and can ensure that the trust can be monitored to avoid adverse tax consequences.
Several states now have laws expressly permitting the creation of a self-settled trust, often referred to as an asset protection trust. What sets these apart from traditional trusts is that they permit an individual to name themselves as a beneficiary of their own irrevocable trust, while still having the trust assets protected from their creditors (and excluded from their estate, if properly structured as a completed gift). While, as the name suggests, these trusts are typically used for asset protection purposes, the ability for the grantor to retain a beneficial interest, while still having the trust be treated as a completed gift, adds an invaluable level of flexibility to any trust structure.
Another example, is a traditional dynasty trust, funded with an individual’s entire lifetime exemption, which would ordinarily place those assets outside the reach of that individual should a financial need arise in the future, a consideration that many families find discouraging. One popular option is to include the spouse as a discretionary beneficiary, giving the grantor an indirect means to access the assets in the future. This does come with its own set of potential pitfalls, particularly if both spouses wish to establish trusts. This also isn’t an option for unmarried individuals. However, in an asset protection trust jurisdiction such as Delaware, the grantor can simply name themselves as a beneficiary of the trust, without changing its status as a completed gift dynasty trust.
Some advisors may consider the creation of a self-settled trust to be an overly aggressive strategy, given the relatively unproven nature of the structure from an estate and gift tax perspective, particularly for clients living in jurisdictions that do not allow asset protection trusts. It may be highly unlikely that the grantor would ever need to access the trust assets. In that case, a more conservative option would be a hybrid approach, whereby a trust is created in an asset protection trust jurisdiction and is structured in a way that it would qualify as a valid asset protection trust, but the grantor is not included as a beneficiary from the outset. Instead, a trust protector is given the power to add beneficiaries from a class that includes the grantor. In this way, at the time of creation and unless or until the grantor is added as a beneficiary, the trust would be treated as nothing more than a traditional completed gift dynasty trust. The grantor still retains the option to be added as a beneficiary should there be an extraordinary change in circumstances that necessitates access to the trust assets.
When creating a trust, it may be difficult to know how much information should be shared with trust beneficiaries and at what stage of their lives. Under most states’ laws, a trustee, by default, is required to inform adult beneficiaries of the existence of the trust and their status as a beneficiary. The beneficiary may then be entitled to further information, including accountings and copies of trust documents, upon reasonable request. This may be problematic, for example, if a beneficiary has a spending problem or is likely to use the availability of trust assets as an excuse to not provide for themselves.
However, Delaware and similar jurisdictions allow a trust instrument to limit or eliminate a beneficiary’s right to be informed of the trust for a period of time, which may be based on several factors, including the lifetime of the grantor or the age of a beneficiary. During that period, a trustee can be permitted to share limited information with specific beneficiaries, or the trust can be completely “silent” until the period has lapsed. It should be noted that a completely silent trust can create administrative complications, particularly if the intent is to make distributions during the silent period. In that instance, a trust protector may be given the authority to modify the notification restrictions if they are no longer in the best interests of the beneficiaries. In addition, depending on the specific jurisdiction, a designated representative may be appointed to represent the beneficiaries and act on their behalf in any judicial or nonjudicial proceeding (including court proceedings and nonjudicial settlement agreements) during the silent period.
Depending on the terms of the trust and the laws of the trust’s home jurisdiction, moving a trust to take advantage of the above strategies may be as simple as appointing a trustee authorized to administer the trust in the new jurisdiction, with no court proceedings required. Often, the governing law of the trust will change immediately upon the change in the place of administration. The trust can then fully avail itself of the various modification options under the new jurisdiction law, which may include decantings, mergers, nonjudicial settlement agreements, and modifications by consent.
These options are not for everyone. Establishing a trust in or moving an existing trust to a jurisdiction other than the grantor’s home jurisdiction invariably involves an additional level of time and expense, and often requires the retention of separate local counsel. In addition, deviations from the traditional trust structure, whether through a directed trust, a self-settled trust or a silent trust, provide an additional level of administrative complexity that should be balanced against the potential gains, in consultation with advisors. However, for the increasing number of families with complicated estate planning needs, a more trust-friendly jurisdiction may be able to provide significant advantages, and can serve as a valuable complement to traditional trusts as part of a comprehensive estate plan.
Alex Lyden-Horn is a Managing Director and the Director of Delaware Trust Services and Trust Counsel at Evercore Trust Company, N.A. He can be contacted at alexander.lydenhorn@evercore.com.
More than ever, home is where our hearts are. Home may also be a cornerstone in our wealth transfer planning, allowing families to utilize the still high lifetime estate tax exemption, without sacrificing liquidity.
Let’s back up. The estate tax exemption, as discussed here, is scheduled to sunset in 2025, with talk of cuts to previous levels indexed for inflation or even less from the current $11.7 million per individual. There has also been some discussion about eliminating the step-up in basis at death. Not surprisingly, many families are exploring wealth transfer options now. But tapping liquid assets can mean compromising lifestyle and other considerations, as well as the risk of generating significant taxes. Placing primary and secondary (or other) residences in trust could provide a tidy solution.
Consider two recent residents of New York who are making some big and potentially very tax-efficient changes in their lives. Their Florida vacation home will soon be their main residence, and their home in Long Island, where they raised their children and still have many friends, will become their summer place. (As discussed in Florida Bound: Moving to a Warmer [Tax] Climate by Helena Jonassen (click here), changing domicile can be tricky; we recommend working very closely with advisors.)
In this couple’s case, changing domicile has been well worth the effort; their income tax and estate tax situation is obviously improving (as Florida imposes neither) and they are flexing new muscles at work and play, exploring their new neighborhood by bike and photographing local birdlife. To utilize their exemption, the couple created two trusts: one a Spousal Limited Access Trust, or SLAT, for the lifetime benefit of the other and then on to their children, grandchildren, and future lineal descendants; and the other a Generation-Skipping Tax-Exempt Trust, or GST trust, also for the benefit of their children, grandchildren, and future lineal descendants.
More to our point here, the couple also retitled their New York property to tenants in common from joint name. This allows one partner to use half of the property to fund the SLAT, while the other can fund the GST-exempt trust. Like many of those implementing similar strategies, the couple and their advisors created an LLC structure to own the property before gifting it. This makes transferring the property easier and provides some efficiencies related to its ongoing management. A subsequent valuation took into account a 25% discount for their relative lack of control over the property, minimizing the amount of exemption used in each transaction while funding both trusts.
The two trusts are now paying the insurance, taxes, and maintenance on the New York (and now vacation) property, amounts that are offset by the couple’s payment of a fair market value rent to use the property as they like. (These grantor trusts do not have to pay income taxes on the rental income.) The couple is aware that the fair market value of the rent may be in excess of the cost of carrying the property, but the potential hit to their liquidity is marginal compared with the one they would have incurred had they transferred other assets. There is an additional benefit to rent above expenses in that it serves as another tax-free transfer to heirs and can put a real yield on the property.
It’s worth noting that if the residence gains significantly in value, the couple could swap inclusion in the trust for other assets of equal value but with a higher cost basis. The house would then be included in the estate and the heirs would benefit from the step-up in cost basis (a readjustment of the value of an appreciated asset for tax purposes upon inheritance). This assumes that the step-up remains in effect.
It’s also worth noting that this couple’s entire approach could work at least as well for other types of illiquid assets with appreciation potential. These and other related issues, including family governance, are matters for discussions with family members and advisors, including corporate fiduciaries. (In this case, the couple works with Evercore Trust Company.)
Ironically, this couple remains relatively liquid, thanks to what many of us consider our most illiquid asset – the family home. It sounds like a lot of planning – and it was – but they are pleased to be wrapping it up and are looking forward to the next stage of their lives.
Tom Olchon is a Managing Director and Wealth & Fiduciary Advisor at Evercore Wealth Management. He can be contacted at thomas.olchon@evercore.com.
From shirtsleeves to shirtsleeves in three generations is a line that everyone knows – and for good reason. Empirical studies of economic mobility suggest that inherited wealth generally erodes with each generation.
But it doesn’t have to be that way. Families can buck the trend with comprehensive planning. There’s a lot more at stake, far beyond the family’s current balance sheet. What are the goals of each generation? How are they evolving? And how do they affect other family members and the family as a whole? Individuals may agree on a family ethos but harbor very different ideas on priorities and timing.
The best multigenerational wealth plans start with conversations, from informal one-on-one meetings to structured family gatherings with trusted advisors, to frame objectives and allay anxieties. The holidays may be a good time to initiate these discussions, whether in person or virtual. (It’s also a good time to initiate early discussions around the transfer of family leadership, a subject we will explore in depth in the next edition of Independent Thinking.)
Once everyone is more or less on the same page, it’s time to plan. The role of the wealth and fiduciary advisor is to analyze the data, provide a blueprint for the family’s wealth structures and a protocol for financial decision-making, and help establish solutions, such as multigenerational trusts that enable each generation to engage with their trustees. Advisors should also educate and support individual family members as appropriate, while always maintaining the objectivity of experienced fiduciaries.
For the first generation, the planning focus is likely to be based on detailed estate and gifting analyses and related wealth transfer strategies, a subject on many families’ minds as we approach the election and a possible change in the gift and estate tax exemption (see the article by Julio Castro and Jen Tse here). Adding to existing trusts (or consolidating older trusts into new ones more reflective of current circumstances) is also top of mind for many families at present, especially as many trusts were set up in 2012 at the point of another major gift and estate tax inflection. An experienced trustee should be able to recognize when existing or evolving circumstances warrant potential change.
For the next generation, those in middle age, the focus tends to be on retirement and domicile. What’s the right time to take Social Security, purchase or add to life insurance policies, perhaps with long-term care insurance riders? Is now the right time to upsize to work more effectively from home, downsize, buy a vacation home and/or move to a more tax-friendly state? Distributions from dynasty trusts help support this generation’s goals, but trustees must be mindful of tax and the potential effect on the assets available for future generations. As this is the generation with the most hands-on responsibility for others, there’s often also plenty to discuss around the care of aging parents, especially during this pandemic, as well as around efficiently funding tuitions in a dramatically changing higher education landscape and helping buy first homes and establish businesses.
Their children – generation three – may be preoccupied with establishing careers, homes and families. The entrepreneurs among them may be seeking access to capital, with their parents and grandparents as potential sources through intrafamily loans or loans from existing trusts – an option that requires thorough analysis for everyone’s benefit. Those employed by established companies might need some help in reviewing benefit packages and investment plans.
And for the very youngest members of a four-generation family, it may soon be time to start learning the value of a dollar – and adding to their financial education every year. That’s likely to be something everyone in the family will agree on, and may wish to support or explore for themselves as they face the life transitions illustrated below. We all have something to learn, after all.
Multigenerational family wealth is often complex, bringing responsibilities as well as advantages to its members. At Evercore Wealth Management and Evercore Trust Company, we work with families to help preserve harmony while securing lasting legacies.
Kate Mulvany is a Partner at Evercore Wealth Management and a Wealth & Fiduciary Advisor at Evercore Wealth Management and Evercore Trust Company. She can be contacted at mulvany@evercore.com.
Editor’s note: Evercore Wealth Management provides customized environmental, social and governance, or ESG, investment services to families, family trusts, foundations and endowments. Additionally, Evercore Trust Company can serve as a sole trustee or as co-trustee, or can provide comprehensive fiduciary support as an agent to individual trustees. Here, Chris Zander, CEO of Evercore Wealth Management and Evercore Trust Company, interviews two leading authorities on trust law about the risks faced by trustees of ESG portfolios. We will address managing the issues raised here and related topics in future issues of Independent Thinking.
Max Schanzenbach is the Seigle Family Professor of Law at Northwestern University School of Law. His research uses economic theory and statistical methods to assess the real-world effects of law and legal institutions in a variety of fields, including trust and fiduciary law. A widely published scholar, he is also a former editor of the American Law and Economics Review.
Robert Sitkoff is the John L. Gray Professor of Law at Harvard Law School. His research and teaching focuses on economic and empirical analysis of trusts, estates, and fiduciary administration. He is the surviving author of Wills, Trusts, and Estates, the most popular American coursebook on trusts and estates, and a coeditor of The Oxford Handbook of Fiduciary Law.
Together, they recently published Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee in the Stanford Law Review.
Q: High net worth investors, foundations and endowments are increasingly interested in and indeed often passionate about ESG investing. We work with clients to meet their ESG goals, without sacrificing returns or taking on too much investment or fiduciary risk. What do you see as the risks for fiduciaries?
ESG investing resists precise definition, but roughly speaking, it is an umbrella term that refers to an investment strategy that emphasizes a firm’s governance structure or the environmental or social impacts of the firm’s products or practices.
The original motives for ESG investing were moral or ethical, based on third-party effects rather than investment returns. In the late 1990s and early 2000s, proponents of socially responsible investment, or SRI, rebranded the concept as ESG by adding corporate governance factors (the G in ESG). Moreover, some asserted that ESG investing could improve risk-adjusted returns, thereby providing a direct benefit to investors.
For example, instead of avoiding the fossil fuel industry to achieve collateral benefits from reduced pollution, ESG proponents argued that the fossil fuel industry should be avoided because financial markets underestimate its litigation and regulatory risks, and therefore divestment would improve risk-adjusted return. On this view, ESG investing can be a kind of profit-seeking, active investing strategy. ESG investing may also be implemented via shareholder voting or other engagement with management (we call this active shareholding or stewardship, in contrast to active investing by picking and choosing securities).
We clarify ESG investing by differentiating it into two categories. We refer to ESG investing for moral or ethical reasons or to benefit a third party – what had been called SRI – as collateral benefits ESG. We refer to ESG investing for risk and return benefits – that is, to improve risk-adjusted returns – as risk-return ESG.
For a trustee or other fiduciary investor, the motive or purpose for using ESG factors is of critical legal significance. You asked about the risks for fiduciaries. The answer turns on the fiduciary’s motive; that is, whether the fiduciary is undertaking collateral benefits ESG or risk-return ESG.
Q: All trustees, individual and corporate, must act with a duty of loyalty and a duty of care or prudence. Do ESG investing strategies that seek to advance specific causes – what you are calling collateral benefits ESG – fall outside those responsibilities?
The trust fiduciary law duty of loyalty, which is applicable not only to trustees of private trusts but also to ERISA fiduciaries, imposes a “sole interest” or “exclusive benefit” rule.1 The trustee or other fiduciary must act in the sole interest and for the exclusive benefit of the beneficiary. Accordingly, ESG investing to benefit a third party or advance a specific cause – what had been called SRI and what we call collateral benefits ESG – ordinarily violates the trust fiduciary duty of loyalty.
ERISA makes the sole interest rule mandatory as a matter of federal law. Neither a plan sponsor nor a plan participant can authorize deviation from the sole interest rule under ERISA. Under current Supreme Court precedent, moreover, the relevant sole interest is limited to the financial interests of the participants.
Under state trust law, by contrast, the sole interest rule is a default that in theory can be overcome by authorization in the terms of the trust or by the beneficiaries. In practice, however, authorization is complicated, and much will turn on the circumstances. There is variation across the states on how much leeway a grantor can give a trustee in the terms of a trust, and authorization by a beneficiary is fraught because it must be fully informed – and there are also questions of temporal scope.
A charitable endowment will typically have a little more flexibility. If a specific cause falls within the organization’s charitable purpose, then pursuit of that cause via endowment investment is a substitute for expenditure (what is sometimes called mission- or program related investment), and so not a loyalty breach. Furthermore, charities are often organized as corporate or other entities rather than as a trust, in which case the application of duty of loyalty may be less strict.
Q: Are some ESG strategies riskier than others from a legal point of view? For example, how does using ESG factors as a component of the underlying decision-making compare with more focused, less diversified strategies (public or private) that advance particular interests?
Collateral benefits ESG ordinarily violates the sole interest rule of the trust law fiduciary duty of loyalty. Risk-return ESG, by contrast, is consistent with the sole interest rule, because by definition the purpose is pursuit of improved risk-adjusted returns.Instead, the question for a given risk-return ESG strategy is whether it satisfies the duty of care or prudence, and in particular, the prudent investor rule. That rule neither favors nor disfavors any particular type or kind of investment strategy.
Instead, as set forth in the Uniform Prudent Investor Act, the prudent investor rule requires “an overall investment strategy having risk and return objectives reasonably suited to the trust” and, other than in exceptional circumstances, requires a fiduciary to “diversify the investments of the trust.” The rule is explicit in not adopting a specific investment strategy or prohibiting specific types of investments.
So a risk-return ESG strategy will be judged under the prudent investor rule on the same terms as any other investment strategy. In light of the current theory and evidence on ESG investing, we believe a program of risk-return ESG could well satisfy the prudent investor rule. As with any strategy, the individual fiduciary must support his or her choices, and the corporate fiduciary its choices, with a reasonable analysis concluding that the risk-return benefits of the strategy offset any associated costs, and that the risk and return objectives of the strategy are suited to the trust. In accordance with the duty to keep adequate records, the fiduciary’s analysis of these considerations must be documented in the fiduciary’s files.
Q: If the performance of an ESG strategy is lagging that of a more traditional strategy – or taking on more risks – does that force a rethink from a fiduciary point of view?
The fiduciary duty of prudence also requires ongoing monitoring. After implementing a prudent investment program, whether based on ESG factors or otherwise, a fiduciary must continue to monitor costs and returns, and adjust the program in light of actual performance and changing circumstances. In the words of the Supreme Court, “a trustee has a continuing duty to monitor trust investments and remove imprudent ones,” and “[t]his continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.”
Q: Some proponents of ESG investing, including the U.N.-backed Principles of Responsible Investing, or PRI, have argued that a fiduciary not only can but must use ESG factors. What is your view?
The claim that ESG investing is or should be mandatory under American trust fiduciary law is wrong. Under the prudent investor rule, there are no categorical rules of permissible or impermissible investments. Instead, as under the Uniform Prudent Investor Act, “[a] trustee may invest in any kind of property or type of investment,” as long as the investment is “part of an overall investment strategy having risk and return objectives reasonably suited to the trust.”
A simple way to see the folly of the PRI’s position is that it would make a passive market index without an ESG wrapper illegal for a trustee or other fiduciary investor. That is not the law. To the contrary, in the words of the Supreme Court, a trustee “could reasonably see ‘little hope of outperforming the market,’” and therefore “prudently rely on the market price.” To put the point more directly, a total market index is not a per se illegal investment for a trustee or other fiduciary.
There is also the difficulty that the ESG rubric is too fluid, and the application of ESG factors too subjective, to lend itself to a mandate. There are hundreds of ESG ratings services, for example, and they often disagree. The subjectivity inherent to ESG investing, and the fluidity of the ESG rubric, casts a pall over the practical feasibility of a mandate.
Q: Nevertheless, industry proponents of ESG, who grow in numbers every day and now include some very well-known investors, Larry Fink of BlackRock among them, are encouraged by evidence that ESG strategies can improve risk-adjusted returns. Do you believe that the evidence is now sufficient to merit a change in trust law?
In light of the current theory and evidence on ESG investing, a program of risk-return ESG could well satisfy the prudent investor rule. But so could a contrarian investing strategy or a passive market index fund. Whether a given investment strategy is prudent will depend on the particular circumstances. There is no need for a change in trust fiduciary law to accommodate prudent ESG investing. And there is no guarantee that risk-return ESG investing, even if an effective strategy now, will continue to be effective in the long run. In particular, active trading based on ESG factors relies on those factors being mispriced in the market today. If ESG grows more popular among investors, those factors should no longer be mispriced, making the strategy less effective.
For more information on the investment and fiduciary issues related to ESG strategies at Evercore Wealth Management and Evercore Trust Company, please contact Chris Zander at zander@evercore.com.
Increased cybercrime is an unfortunate side effect in the global fight against COVID-19. As families and companies seek information and adapt to new forms of communication, criminals are seeing new opportunities. Wealth managers are in the frontlines of this battle, working to protect client information and assets. Here we interview Kate Mulvany, a Partner and Wealth & Fiduciary Advisor at Evercore Wealth Management, and Elsa Ferreira, Chief Information Security Officer at Evercore.
Q: Cybersecurity is a major focus across Evercore and the firm has allocated substantial resources to this fight. At this point in the pandemic, how are you seeing cybercriminals trying to exploit companies and individuals?
Elsa: It’s certainly a challenging time, and we are marshaling significant resources to defend our firm and our clients. We know that criminals are increasingly preying on decentralized workforces, and on people’s fears associated with COVID-19. Phishing emails claiming to provide useful information about the virus are on the rise. These malicious emails often impersonate regional health organizations and/or pretend to provide up-to-date virus statistics, news or testing updates.
Kate: We are seeing evidence of these increased attempts at Evercore Wealth Management and Evercore Trust Company too. We are well aware that wealth managers are obvious targets, and we are fortunate to be part of a firm with powerful resources.
Q: What is the real purpose of these attacks?
Elsa: The goal of these phishing campaigns is to copy passwords and install malware to steal money and personal and professional information.
Q: Can you provide a recent wealth management example?
Kate: Sure. Earlier this month I received a client email notifying me that they were sending me a Google document. As I was not expecting any document from that client and the notice seemed odd, I immediately forwarded the email to our IT team, which was able to confirm that the client had in fact been hacked, and provided the client with specific instructions to minimize any financial impact. Next steps were to meet with the client (by phone) to establish new procedures around money movement requests and general communications.
Our policies and procedures are regularly tested and reviewed and have stood our clients in good stead. We are able to safely facilitate money movement for our clients on a daily basis, while only accepting instructions to move funds to a verified account on file. Instructions are verified verbally. Additionally, any payments to third parties (attorney escrow accounts for home/business transactions, auto dealers, third-party tuition services, and so on) are verified with both the client and with the third party.
Q: What is your advice to clients to protect their companies and themselves from cybercrime during this pandemic?
Elsa: It is essential to remain vigilant in your use of email, and to be cautious of any emails aiming to provide you with information on COVID-19. If you are seeking updates on the spread of the pandemic or related news, it is best to navigate directly to a trusted website. Also, be aware of phishing emails. Ask yourself if you were expecting the message and know the sender, and if the content and link make sense. Do not share passwords through email. Only visit reputable websites. And keep in mind that cyberscammers don’t limit themselves to your PC, they aim for your mobile device too.
Kate: If you have any concerns, please don’t hesitate to contact your advisors.
Kate Mulvany is a Partner and Wealth & Fiduciary Advisor at Evercore Wealth Management. She can be contacted at mulvany@evercore.com.
Investment and Wealth Management services are provided by Evercore Wealth Management, LLC an investment advisor registered with the U.S. Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940. Registration with the SEC does not imply a certain level of skill or training. Trust and custody services are provided by Evercore Trust Company, N.A. a national trust bank regulated by the Office of the Comptroller of the Currency.
Client retention rate is based on data from 06/30/24 – 06/30/25. Assets under management are as of 06/30/25