CURRENT ISSUES

The following was written by F. Jordan Earle, CEO-East Broad Trust Company.
For a copy of the entire document, click here or the "Issues To Think About" link at the bottom of the page.

Repeal of the Estate Tax
In 2001 Congress voted to gradually raise the amount of one's estate that is exempted from estate tax from $1 million ($2 Million per couple) to $3.5 million (7.0 Million per couple) by 2009. By 2010, the tax is completely eliminated but subject to reinstatement in 2011 in its original (i.e. 2001) form.

However, with the scheduled elimination of the estate tax in 2010, Congress plans to replace some of the lost revenue by reducing the benefit of stepping up asset cost basis. Currently, assets in an estate receive a step up in cost basis to fair market value. The step up can significantly reduce or eliminate capital gains taxes if highly appreciated assets are sold in the estate.

Trust Document Drafting Trends Given Repeal Of Estate Tax
Flexibility. Flexibility. Flexibility. In testamentary or other irrevocable trusts, it is important to ensure successor language grants trustees the right to resign, and grantors or beneficiaries the flexibility to appoint a new fiduciary. However, language should not be so broad that it compromises the grantor's overall financial planning objectives or risks increasing estate taxes.

Total Return Trust Concept. Some trusts are being drafted so that the definition of income includes realized gains. In 2001, South Carolina adopted the South Carolina Uniform Principal and Income Act [SCUPIA, Code Ann. 62-7-401 through 62-7-432]. "The act embraces Modern Portfolio Theory by giving the trustee the power to adjust between income and principal accounts."

What does this mean? "The trustee now has the power to reclassify what would otherwise be principal as income, or income as principal, and thereby make more income available for distribution to the current income beneficiary. However, the trustee is not allowed to add to or change the class of beneficiaries or the quality or type of beneficial interests."

Objective Investment Management
East Broad Trust believes that the investment side of a trust relationship must be a process that is prudent, objective, and provides clients flexibility. According to Salomon Smith Barney Trust Source, clients want best-of-breed management in each asset class. This means retaining managers that are independent. Limiting a seperate account management program entirely to proprietary, in-house management does not offer clients the level of objectivity and access to best-of-breed investment management.

Closing Thoughts
During challenging times, it is more important than ever to stay focused. "We must not get distracted by the event du jour, the scandal of the month, and the cult of personality that can cover the airwaves." (Salomon Brothers/Smith Barney Trust Source)