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Trust Legislative Update

This document provides a detailed overview of current legislative issues related to trusts, estates, and charitable giving. It covers key topics such as estate and gift tax proposals, savings options like ERSAs and HSAs, as well as the implications of the Paulson Report and SEC proposals on hedge funds and global competitiveness. Additionally, it addresses advertising restrictions for banks offering brokerage services, the calculation of compensation, and outstanding regulatory issues that impact banks and fiduciaries. The update highlights critical changes and anticipated future developments in financial regulations.

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Trust Legislative Update

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  1. Trust Legislative Update Sally MillerABAsmiller@aba.com

  2. Legislative Issues • Estate & Gift • Savings Proposals • Charitable Giving • Basis Reporting

  3. Legislative Issues (continued) • Global Competitiveness • Hedge Funds

  4. Estate & Gift • Phase-out with complete repeal in 2010 • 2011 brought back at 2001 level • Budget Proposal • Likely Outcome

  5. Individual Savings Options: RSA, LSA • Employer Based Savings Account: ERSAs • HSAs

  6. Charitable Giving from IRA • Basis Reporting Obligation on Brokers/Mutual Funds/Asset Managers/Fiduciaries

  7. Global Competitiveness • Paulson Report • Bloomberg/Schumer • Chamber

  8. Hedge Funds • Congressional Oversight • SEC Proposal • Antifraud • High-net worth requirement • President’s Working Group

  9. Financial Services Regulatory Relief Act • Thrift Investment Adviser Registration • Attribution under 2(g)(2) of BHCA • Joint SEC/FRB Rulemaking

  10. Regulation R • Trust and Fiduciary Exception • Chiefly Compensated • Relationship – Total = 50% • Account-by-account

  11. Bank-Wide Exemption • Relationship – Total = 70%

  12. Relationship Compensation • Admin Fee • Annual Fee • Assets under management, including 12b-1, 7 dwarfs, personal service or maintenance of shareholder accounts

  13. Advertising Restrictions • Cannot advertise that bank provides securities brokerage services, except as part of advertising trust/fiduciary services • Cannot advertise securities brokerage services provided by banks more prominently than other services

  14. Advertising restrictions do not apply to sales literature

  15. Adoption/Compliance Date • Adoption – anticipated summer of 2007 • 1st fiscal year commencing after 6/30/08 • Impact on chiefly compensated calculation: 2 year calculation

  16. Exemption • Short-term accounts – opened for less than 3 months during the year • Accounts acquired as part of M&A transaction for 12 months • Transferred accounts to b/d within 3 months of the end of the year • Certain de minimus accounts

  17. Issues Identified • Escrow, paying & disbursement accounts where bank exercises investment discretion • Bankwide/Holding Company: flexibility

  18. Fees paid by mutual fund, not investment adviser, transfer agent, or distributor • Settlement Fees • Securities Lending • Performance Based

  19. Custody Services • Order taking permitted • Employee benefit, IRA & similar accounts • Non-fiduciary administrators and record-keepers

  20. Advertising Restrictions Include: • Not advertising that custody accounts are a substitute for a brokerage account. • More prominent limitation similar to trust also applies to sales literature for IRAs and similar accounts.

  21. Order Taking Permitted • Other custody accounts as an accommodation • Restrictions • Employee compensation • Bank fees • Advertisements • Investment advice and recommendations

  22. Order-Taking • Not permitted if bank functioning in a trust or fiduciary capacity • Broker-dealer execution requirement

  23. Securities Lending • Only if functioning as an agent/does not apply if custodial securities lending agent • Qualified investor and employee benefits plan with $25m in investments

  24. Broker-Dealer Execution • Statutory requirement waived for mutual funds if order directed to: • NSCC Mutual Fund Service, or • Transfer Agent

  25. MMMF Exemption • No-load • Non no-load • Provide prospectus • Can’t characterize as no-load • Impact on bank-wide fiduciary exemption

  26. Referral Fees • 2x base hourly rate • 2x average min-max hourly wage for job family • 1/1000 average min-max annual base salary for job family • $25 • No points

  27. Institutional Referrals • Can pay larger fees if • HNW customer • Institutional

  28. HNW • Individually or jointly, with spouse, has at least $5 million in net worth excluding primary residence and associated liabilities

  29. Institutional • $10m in investments • $40m in assets or • $25m in assets if referral for investment banking services

  30. Bonus Plans • Profitability of • Bank or BHC • Any bank affiliate (other than b-d) or operating units • B-D if • Profitability only one of multiple factors/variables used • Significant factors/variables that are not related to profitability of b-d

  31. Bonus Plans • Discretionary • Multiple factors/variables • Factors/variables include significant factors/variables not related to security transactions • Referral not a factor • Bonus not determined by reference to others referrals

  32. Unresolved Issues • Dual Employee • Licensing • Supervision • Bank Recordkeeping Rules

  33. CONCLUSION

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