How to fund your trust Spotlight: Asset Management 5A

TUESDAY, DECEMBER 11, 2007 • THE DAILY TRANSCRIPT
5A
Spotlight: Asset Management
How to fund your trust
By MICHAEL B. ABRAMSON
Solomon Ward Seidenwurm & Smith LLP
Avoiding probate is one of the primary benefits of
having a revocable living trust; however, merely setting up a trust is insufficient. In general, the trust
must be funded during your lifetime in order to
avoid probate.
Probate is the process where the court oversees the
distribution of the deceased person’s assets in accordance with the person’s will.
It is desirable to avoid probate because the probate
process can be lengthy (six
months or more), costly
(executor and legal fees) and
an invasion of privacy (probate is a public process).
By following a few key
steps and working closely
with your attorney, your trust
should provide your heirs
with the assets you intended
without the burdens of proAbramson
bate.
What is “funding” a trust?
A trust is “funded” when your assets are transferred to it. An asset can generally be transferred to a
trust by changing the asset’s title so it is clear that
you are holding the asset as trustee of your trust. The
general rule is that assets held in a revocable living
trust are not subject to probate.
Why is funding the trust important?
Your trust likely provides that upon your death
(and the death of your spouse, if married), a designated third party (called the “successor trustee”) is
given the power to manage and distribute the assets
in the trust in accordance with your instructions. If
your assets have been funded into the trust, then the
successor trustee can proceed to manage and distribute the assets without probate.
Who is responsible for funding a trust?
The attorney drafting your trust may assist with
funding certain assets into a trust, but you are ultimately responsible for ensuring that your trust is properly funded and stays funded throughout your life.
Which assets should be funded in a trust?
Most clients intend for their trust to serve as a funnel through which all assets should pass. Below are
some of the issues relating to funding your trust.
• Cash and nonqualified investment accounts
Cash accounts (including savings accounts and
money market accounts) and nonqualified investment accounts should be funded into the trust.
Banks and brokerages are accustomed to transferring their clients’ accounts into revocable living
trusts. Sometimes you will be asked for a copy of the
trust (though the first page, signature page and
trustee powers sections generally suffice).
If your bank account or investment account permits you to designate a beneficiary to whom the
account should be distributed upon your death, you
will likely be able to avoid probate by choosing a beneficiary. However, beneficiary designations should be
carefully coordinated with your estate plan. By utilizing a beneficiary designation you will be circumventing your trust — especially where the beneficiaries
named in your trust differ from those listed on your
account form or if your trust sets forth conditions to
the distribution to your beneficiaries (such as a child
attaining a certain age).
If you hold stock directly in your own name, you
should contact the issuer or transfer agent to arrange
for the transfer of the stock to your trust.
Periodically check your account statements to verify the account remains funded in the trust.
• Real property
A residence is often the most valuable asset in a
person’s estate. Your residence should be funded into
your trust. Investment property should also be funded into your trust. This is easily accomplished by filing a deed (with a properly completed Preliminary
Change of Ownership form) in the jurisdiction
where the property is located. Transfers to a revocable living trust are statutorily exempt from reassessment and transfer tax. A lender is generally prohibited from triggering a due-on-sale provision upon a
transfer to a revocable living trust. If you own investment property through an entity, such as an LLC,
you should own that entity in your trust.
Lenders sometimes ask clients to transfer property out of a revocable living trust while the property is
being refinanced. Be sure to transfer it back into the
trust upon the completion of the refinance.
• Life-insurance
Life-insurance ownership and beneficiary designations should be carefully coordinated. As with bank
accounts and investment accounts, life insurance payouts will circumvent your trust unless the trust is the
beneficiary. Discuss with your attorney whether your
revocable living trust should be named the primary
beneficiary or a “back up” beneficiary and whether the
policy should be owned by the trust or otherwise.
• Qualified investment accounts (IRAs and
401(k)s)
Use great care (and consult with your accountant,
financial planner or lawyer) when adjusting the title
or beneficiary designation of your IRA and 401(k).
To preserve the favorable tax treatment of these
accounts, they should remain titled in your name
individually. As with bank accounts and life insur-
See Fund on 6A
Socially responsible investing offers
multitude of investment opportunities
By JAN SCHALKWIJK
Special to the Daily Transcript
Socially Responsible Investing
(SRI) incorporates environmental, social and corporate governance evaluation.
With increasing awareness
about sustainable living, the environmental aspect commands the
most attention from the public and
the media these days. And for good
reason — we are facing tremendous challenges related to climate
change and other environmental
issues. The green revolution is the
latest trend 25 years in the making.
In addition to the environmental aspect, investors are also looking at other criteria to evaluate
whether a company represents a
responsible investment.
An ever-growing chorus of
institutional investors, such as
pension funds and large endowments, is voicing concerns related
to gender equality and employeefriendly workplaces. Moreover,
retail investors are joining the
choir. The marketplace has
responded by making available
mutual funds that offer SRI
screening specifically related to
workplace, gender equality and
other social issues.
Parnassus Investments, an SRI
mutual-fund company based in
San Francisco, has a product
called “The Workplace Fund.”
According to the company’s Web
site, it “looks for companies that
have great workplaces for their
employees, with the idea that
happier employees make for better companies.”
To find these companies,
Parnassus Investments works
with Milton Moskowitz, the coauthor of Fortune magazine’s
“100 Best Companies to Work
For.” Parnassus ultimately decides
which stocks to hold, using
Moskowitz’ work as a guide.
The notion that good places to
work are also good investments
— or at the very least do not pay a
performance penalty for treating
their employees with respect —
appears logical. So far, the fund,
which was created in April 2005,
has delivered. The year-to-date
performance as of Sept. 30
amounted to 10.32 percent, compared to 9.13 percent for the S&P
500 and 9.41 percent for the
Lipper Multi-Cap Core Average.
PAX World Funds, based in
Portsmouth, N.H., has recently
assumed ownership and portfolio
management responsibility for the
Woman’s Equity Fund. According
to PAX, the Women’s Equity Fund
“applies sustainable investing criteria, emphasizing companies that
promote gender equity through
internal policies and programs,
transparency regarding the effectiveness of those policies and programs, and accountability among
employees to assure implementation and observance.”
The gender criteria are in addition to the other environmental,
social and governance (ESG) criteria that PAX uses in its investment analysis. Although it may be
difficult to assess a performance
differential based on how a company approaches gender, it certainly is not difficult to ascertain
that gender equality is desirable
and, in combination with other
ESG factors, can lower a company’s risk exposure and increase its
attractiveness.
It is also important to note that
just as the aforementioned funds
look at more than workplace and
gender issues, other SRI funds
may also look at these particular
issues as part of their broader
screening process. Understanding
how a fund screens will help an
investor decide whether it passes
the investor’s own criteria. An
investor can get a good idea of
what a fund company may or may
not invest in by looking at the
company’s ESG criteria, which are
often displayed on its Web site or
in its prospectus. When it comes
to issues such as nuclear power or
gambling, different fund companies take different views, or may
have varying levels of tolerance.
As there are no perfect corporate citizens, it is hard to find a
perfect mutual fund, especially
for the SRI purists. Keep in mind
that even though there may be
some fund holdings that operate
in the grey area, the fund manager can still exert influence as a
shareholder and use shareholder
advocacy to promote ESG issues.
Consider therefore not just what
you own, but also how you own.
If concerned investors cannot
find enough funds to diversify
their portfolio that meet their criteria, it may make sense to supplement funds with individual
securities. The advantage would
be increased flexibility. It would
be more difficult to engage in
shareholder advocacy, however,
which is easier done when
investors pool their interests into
a singular entity such as a fund.
The SRI universe has evolved
and at present it is much easier for
an individual investor to engage in
SRI. It is no longer just about sin
stock avoidance but about a
greater set of issues, with options
for investors to focus on certain
areas of particular concern.
The underlying reason for
increased choice is the fact that
more companies are coming to
the conclusion that it makes good
business sense to be responsible.
It is not about choosing profits to
the detriment of responsibility;
the two can go hand in hand.
Schalkwijk, CFA, is the founder
and principal of downtown San
Diego-based
JPS
Global
Investments, an investment advisory firm that specializes in sustainable investing.
Source Code: 20071211crb
6A
TUESDAY, DECEMBER 11, 2007 • THE DAILY TRANSCRIPT
Spotlight: Asset Management
Your roadmap to business success Pension funds pulling back
Guide your growth
with a well
thought out plan
By ANDREA KOROGI
Special to the Daily Transcript
Would you start out on a long trip
to a new destination without a
map? Starting a business or moving
into a growth mode also requires a
road map to help guide success.
Developing a business plan is
considered to be the most important step to take in starting or
expanding a business. For a startup, the business plan serves as a
guide by which to determine your
objectives, mission, competition,
market strategies and your financial projections.
Much of this will start out as
“blue sky” projections because you
will not have actual facts and figures to guide you. This is where
you should spend time researching
existing businesses and learning
all you can about their products,
service and pricing. To do this, just
start calling, visiting and talking to
people as much as possible.
One of the most common mistakes in starting or growing a
business is not understanding
your personal strengths and
weaknesses.
If you are excellent at what you
do, but hate to sell, you have
much less chance at success.
All businesses have to sell, and
if that is not your strength, then
find a partner who is strong in
that area, or plan to add more
financing to hire a salesperson or
produce a great marketing plan.
Getting started on your business plan can seem daunting, but
you do not need to completely
reinvent the wheel. There are
hundreds of great sample business plans from A to Z online, and
there is no reason you cannot use
some of that wording and those
strategies to develop your plan.
If seeking financing, you will
need to show that you know your
industry and the competition very
well. One resource to use for
determining the income and profit of specific companies is a guide
called the RMA Annual Statement
Studies. Banks use this guide to
help determine performance standards for businesses, and you can
find it at local libraries.
All businesses, whether startup
or growing, will be required to
supply prospective financing data.
In most cases, creditors will
want to see what you expect your
company to be able to do within
the next five years. Make sure your
projections match your funding
request and include a short analysis of your financial information.
Financial institutions are not
necessarily looking for a lengthy
business plan, but one that tells
your story well through research,
strategy and financial projections.
If you get stuck on the financial
projections, you can go online to
get programs such as Cash
Compass, go to a local organization such as the Carlsbad
Chamber of Commerce for established business counseling, or
SCORE for startup counseling.
Existing companies need an
updated strategic plan every one
to two years. How long has it been
since you have taken the time to
update your strategy, focus on
your main priorities, evaluate
your pricing or realign your team
for best performance? As an
owner of a small or medium business you cannot afford not to
plan, otherwise outside influences
will determine your direction.
Whether you call it a strategic,
operational or business plan,
every business owner needs to
take the time to chart their
course. This is a great opportunity
to sit down with your team, part-
ner, accountant or just yourself
and evaluate where you are and
where you want to go.
Small business owners have
three basic types of assets: human
(or more aptly, time), financial
(including inventory) and tangible (fixed assets).
“Allocating human or time
resources should be the highest
priority, as usually these are the
scarcest resource and these are
also the assets that will give the
most bang for the buck. Ask yourself, ‘Where will I allocate our
time this year — marketing and
prospecting, sales, profit improvement, training or organizational
areas?’ Financial assets should be
allocated based on the premise of
filling the current capacity or
expanding the current capacity,”
said Kris Sinderholm, owner of
SBS Associates. “Again, ask yourself, ‘Which is more important to
our business this year, filling the
pipeline or expanding the
pipeline capacity?’ Tangible assets
will generally follow the first two.”
Organizations like California
Manufacturing
Technology
Consultants (CMTC) and Small
Manufacturer’s Advantage offer a
SWOT (Strength, Weakness,
Opportunities & Threats) analysis at no charge to help small
business owners evaluate where
they should put their emphasis.
“It’s really helpful to have a professional look at your business
with an objective lens and provide
an improvement plan that can
often lead to increased productivity and higher profits,” said Lorri
Aiello, manager of CMTC.
Marketing is one of the most
important areas of your strategic
business plan. The process of creating customers and keeping customers loyal should be the
lifeblood of your business.
There is no single way to
approach a marketing strategy
because each company is unique.
As your business grows, your
marketing strategy should change
to reflect what has worked well
and less effective programs
should be eliminated.
As an example, if a customer
loyalty program that includes a
discount for return customers is
producing results, but the advertising flyer you have been distributing has not been producing
results, look at allocating more
funds toward your loyalty program. Make sure you have a way
of tracking the effectiveness of
your programs, and compare
them from year to year.
If you still find it difficult to evaluate your business and write the
plan on your own, seek outside
resources. As a planning tool, these
strategies should guide you through
the various phases of your business.
To make it even more effective,
share the plan with employees to
foster a broader understanding of
where the business is going.
Korogi is director of Small
Business Development for the
Carlsbad Chamber of Commerce.
Source Code: 20071211crc
By CRAIG KARMIN
The Wall Street Journal
As the U.S. stock market struggles, it is facing another head
wind: Some of the nation’s most
powerful investors are unloading
shares in a big way.
Several of the largest public
pension funds have been selling
billions of dollars held in U.S.
stocks, and others are expected to
join in. In most cases these
actions are unrelated to the
recent market jitters, though
worries about the economy, the
weakening dollar and the credit
crisis could be accelerating these
moves. More broadly, they are
part of a long-term plan to
reduce stock holdings in U.S.
companies to help fund other
investments.
Among the funds that are part
of this trend: the New York State
Teachers’ Retirement System, the
New York State Common
Retirement Fund, the Teacher
Retirement System of Texas and
the Florida Retirement System
Pension Plan. Collectively, these
plans control more than $500 billion in assets.
Recently, the nation’s largest
public pension fund indicated
that it may soon join them.
Russell Read, chief investment
officer for the California Public
Employees’ Retirement System,
or Calpers, said at a board meeting last week that the $250 billion
fund could enhance returns by
moving assets to foreign from
U.S. stocks.
One plan calls for Calpers to
reduce its U.S. stock position to
24 percent, from 40 percent of its
portfolio, which would represent
the fund’s lowest allocation to
U.S. stocks in more than 20 years.
Calpers’ board will consider the
measure next month.
While some public pension
funds are bucking the trend by
keeping their U.S. stock holdings steady, industry consultants
said the clear majority — many
still wary of the stock market
selloff at the start of this decade
— are cutting back. “This is a
long-term systemic trend,” said
Cynthia Steer, chief research
strategist at Rogerscasey , a
Darien, Conn., consulting firm.
“It isn’t going to turn around
soon.”
Source Code: 20071211crd
Fund
Continued from Page 1A
ance (discussed above), using a
beneficiary designation will circumvent your trust. Generally,
you should either list your trust as
the beneficiary, or list your surviving spouse as the primary beneficiary and the trust as the “back
up.”
• Closely held business
Shares of closely held corporations, membership units of limited liability companies and partnership interests should be held in
your trust. Transferring ownership in a closely held business to
your trust is accomplished by
transferring your certificates (or
other evidence of ownership) to
the trust. You may also want to
execute a stock power or transfer
separate from certificate. Be sure
this transfer is properly reflected
in the company’s books and
records. Pay careful attention to
how this transfer may affect any
shareholders agreement, operating agreement or partnership
agreement, and confirm the
transfer is not prohibited by or
inconsistent with the terms of
such agreements.
• Vehicles
Most clients choose not to place
their vehicles in their trusts
because vehicles are frequently
changed and the DMV has a procedure to facilitate the transfer of
a vehicle without probate after the
owner’s death. If you desire to
place your vehicle in your trust,
the DMV can assist you with the
transfer.
Abramson is an attorney with
the San Diego law firm Solomon
Ward Seidenwurm & Smith LLP
and routinely advises clients on
business, real estate and estate
planning matters.
Source Code: 20071211cra
Money Management Firms
Listed by Minimum Investment Amount (Institution)
Name
Address
Phone, Fax
E-mail
URL
Minimum
Investment
(Institution)
Minimum
Investment
(Individual)
Total Assets Managed
Number of
Portfolio
Managers
1
Brandes Investment Partners LP
11988 El Camino Real, Suite 500
San Diego CA 92130
(858) 755-0239, (858) 755-0916
[email protected]
www.brandes.com
$10,000,000
$100,000
$121,700,000,000
41
Selected U.S. and non-U.S. equity and fixed income portfolios
Charles Brandes, Chairman; Glenn Carlson, CEO
1974
2
Chandler Asset Management
9255 Towne Centre Drive, Suite 350
San Diego CA 92121
(858) 546-3737, (800) 317-4747,
(858) 546-3741
[email protected]
www.chandlerasset.com
$10,000,000
$500,000
$3,000,000,000
3
Provides fully customizable, client-centered portfolio management that
preserves principal, manages risk and generates income
Kay Chandler, CFA, President/CEO; Martin Cassell,
CFA, Exec. VP/Chief Investment Officer
1988
3
GlobeFlex Capital LP
4365 Executive Drive, Suite 720
San Diego CA 92121
(858) 658-9060, (858) 658-9061
[email protected]
www.globeflex.com
$10,000,000
n/a
$4,300,000,000
5
U.S. Small Cap equity, U.S. Small Cap Growth equity, U.S. Mid Cap equity, International All Cap equity, International Small Cap Equity
Marina Marrelli, CEO; Robert Anslow, CIO
1994
4
LM Capital Group LLC
401 B St., Suite 920
San Diego CA 92101
(619) 814-1401, (619) 814-1404
[email protected]
www.lmcapital.com
$10,000,000
n/a
$2,011,000,000
3
Opportunistic core, fixed income-core, fixed income, intermediate fixed
income, short-term fixed income portfolios
Luis Maizel, Senior Managing Director; John
Chalker, Managing Director; Richard Deary, Sr. VP
Marketing and Client Services
1989
5
Duncan-Hurst Capital Management LP
4365 Executive Drive, Suite 1520
San Diego CA 92121
(858) 597-4800, (858) 597-4802
[email protected]
www.dhcm.com
$5,000,000
$25,000
n/a
6
Growth equity portfolio management in all market capitalization ranges
William Duncan Jr., Chairman/CEO; Frank P. Hurst,
President; Michael De Mayo, CFO; Rebecca
LaFerney, VP, Admin.
1990
6
Northern Trust Bank of California
4370 La Jolla Village Drive
San Diego CA 92122
(858) 824-1200, (858) 457-2876
www.northerntrust.com
$5,000,000
$2,000,000,
fully managed
account, $2,500,
mutual funds
$653,000,000,000
3 (local),
99 (companywide)
7
Rice Hall James and Associates LLC
600 W. Broadway, Suite 1000
San Diego CA 92101-3383
(619) 239-9005, (619) 239-6034
[email protected]
www.rhjfunds.com
$5,000,000
$2,000,000
$2,414,100,546
(as of March 06)
8
Small Mid Cap equity, Mid Cap equity, Micro Cap equity separate
accounts and mutual funds
Thomas W. McDowell, CEO/Portfolio
Manager/Analyst; Kevin T. Hamilton, CFA,
President/Portfolio Manager/Analyst
1974
8
Caywood-Scholl Capital Management
4350 Executive Drive
San Diego CA 92121
(858) 452-3811, (858) 535-9068
[email protected]
www.caywood-scholl.com
$3,000,000
$3,000,000
n/a
3
High-yield fixed income and investment-grade fixed income
James R. Caywood, Principal/Chairman Emeritus;
Eric Schol, Chairman/CEO/Co-CIO; Thomas Saake,
President/Co-CIO
1986
9
Messner and Smith Investment
Management Ltd.
530 B St., Suite 300
San Diego CA 92101
(619) 239-9049, (619) 239-0838
[email protected]
www.messnerandsmith.com
$2,000,000
$1,000,000
$292,000,000
3
Separate account strategies, midcap value, SMID value, small cap value,
balanced, limited partnership strategies, midcap value, small cap value,
balanced
John Messner, Principal/Portfolio Manager; Ellis
Smith, Principal/Portfolio Manager
1984
Financial Products Offered
Executive(s) & Title(s)
Portfolio management, private banking, brokerage services, financial conSherry Barrat, Chairman/CEO/Director, Northern
sulting, wealth management, securities custody, separately managed
Trust Bank of California; Susan Mallory, Regional
accounts, estate planning, wealth advisory services, alternative investPresident, San Diego
ments, mutual funds and trust administration
Year
Established
1889
Data Source: The Companies and their Web sites. Listed by Minimum Investment (Institution). This is a partial list. A more complete listing can be found at sourcebook.sddt.com. N/A: Not Applicable, n/a: not available, wnd: would not disclose. It is not the intent of this list to
endorse its participants, nor to imply that the company’s size or numerical rank indicates its quality or service. We reserve the right to edit listings or to exclude a listing due to insufficient information. The following companies did not respond to our survey: La Jolla Asset
Management, American Investment Bankers, Merrill Lynch. Compiled by Robin Scott, [email protected] Last updated 11/2007.