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Trust Legislative Update

Stay informed about the latest legislative updates impacting trust matters, including estate and gift taxes, savings proposals, charitable giving regulations, and basis reporting obligations.

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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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