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Banks, Brokerages See Growing Opportunity in Managing Estates

Money: More people are facing complex situations, and they hope hiring a pro will avert legal snafus and preserve family harmony.

May 28, 2000|INDRANEEL SUR | TIMES STAFF WRITER

Bank trust departments, long the province of the wealthy few, are gearing up to play a much broader role as increasing numbers of large and complex estates are passed from the World War II generation to their children.

Baby boomers will collectively inherit trillions of dollars in coming years at a time when the chores of selling assets, managing a trust and distributing money have never been more complicated. Increased rates of divorce and remarriage as well as the acceptance of unmarried couples have increased the need for objective, though often expensive, professionals to run estates.

Banks--and more recently, brokerages--are rushing to provide the trustees needed to settle estates and mediate disputes. Lawyers, planners and certified public accountants are also getting into the act.

The demand is fueled not only by growing wealth but also by greater legal liabilities for trustees and increasingly complicated family arrangements, experts say. Some family members may live far away and have busy lives, while others with different interests might be more likely to fight aggressively for their share of estates--all of which spells opportunity for the professionals.

Major financial companies have geared up to handle the growing demand. Large banks, including Wells Fargo and Bank of America, have augmented their trust departments in recent years. Personal trust and estate assets under management by nationally chartered banks in California alone grew from $34 billion in 1988 to $95 billion in 1998, according to the Federal Financial Institutions Examinations Council.

Brokerages are also discovering the financial lure of trust departments. In January, discount brokerage Charles Schwab acquired U.S. Trust, which manages $86 billion for high-net-worth clients. At rival Merrill Lynch & Co., personal trust assets managed by the largest U.S. brokerage grew from zero in 1987 to nearly $12 billion in 1999, said Chief Operating Officer Christian G. Heilmann in New York.

Not all professional trustees work for corporations. Lawyers, CPAs and financial planners who offer estate planning advice have discovered that their clients also want help in executing those plans.

Lawyers confirm that their clients are increasingly choosing professional help. Only 5% of the clients of Irvine estate planning lawyer Beverly Verano chose corporate trustees a decade ago, but up to 30% do so today. The option is especially popular among working couples without children, she said.

"Their feeling is, 'Our friends are busy with their lives. We'd rather name somebody who knows what they're doing,' " Verano said.

Professional management also appeals to couples whose children may be unable to handle the family estate, as well as to those who have complex holdings or who want to attach elaborate conditions to the dispersal of their assets.

In these litigious days, family members and friends may also be less willing to take on the responsibility of settling someone's affairs because California and many other states have made it easier for beneficiaries to sue trustees in estate matters.

Those risks may mean that a family member will insist on being paid generously to serve as a trustee or executor of an estate. But generally, a corporate trustee will be more expensive. Because they are normally paid a percentage of assets, many banks and trust companies will not handle estates under a certain level, often $500,000 or $1 million.

People with smaller estates may find lawyers, CPAs or planners to manage a trust for a fee of 1% of the assets.

The costs are high enough that those with small, simple estates may be better off asking a friend or family member to settle an estate, said Denis Clifford, an estate planning lawyer and author of legal self-help books, including "Plan Your Estate."

Certainly, hiring a professional trustee is no guarantee of harmony.

Standish Smith, founder of Heirs Inc., a Villanova, Pa., beneficiary advocacy group, said he fields up to 15 calls a week from people nationwide who complain about corporate trustees who invest too conservatively, charge too much or have conflicts of interest.

Trustees reply that they are legally bound by whatever terms the people establishing the trust laid out.

"When anyone manages your money, you're always going to think it's not as good as what you could have done," said Irvine estate planning lawyer Colleen Barney.

If beneficiaries decide to sue, the trustees can use trust assets to defend themselves, making it doubly costly for heirs to go to court.

Trustees may also charge termination fees even if the trust documents empower the beneficiaries to take the estate to another firm. "It's absolutely essential to have a trustee removal clause, but that's not a panacea," Smith said.

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