Trust Updates Archive
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summary of the current issue of Trust Regulatory News: * Trust Scams—Another Reason to Know Your Customer * IRS Dirty Dozen and Other Trust Scams * Poor Draftsmanships Proves Expensive Lesson * Avoiding Charitable Trust Pitfalls * Fiserv Pays $15 Million for Officers' Deceptive Practices * SEC Needs to Step Up Assessment of Compliance Function, Says GAO * Fiduciary Protection Proposed by DOL for Abandoned Plans * Blogging ''Bad'' Trustees * IRAs Equal to Other Plans Under Bankruptcy Law, Says Supreme Court * Call It What You Want—It’s Still a Will Contest * BSA—Customer ID Programs ******************************************************************* Trust Scams—Another Reason to Know Your Customer ******************************************************************* Grantor misuse of trusts remains No. 1 on the 2005 IRS list of ''Dirty Dozen'' tax scams. The establishment of trusts for questionable or illegal purposes should be of concern to bank trustees, according to legal experts, because trustees can be held liable for previous transfers once they come into the chain of title. ******************************************************************* IRS Dirty Dozen and Other Trust Scams ******************************************************************* Overview of various trust scams: charitable remainder trust distributions, common trust fund straddle, contested liability trust scam, basis-shifting scam, Roth IRA abuse, collective bargaining exemptions, and ESOP owning S corporation scam. ******************************************************************* Poor Draftsmanships Proves Expensive Lesson ******************************************************************* A recent appeals court decision highlights grantor and beneficiary risks of poorly drafted trusts. With increased interest in estate planning, many individuals are turning to planning software or legal counsel that may not have specialized knowledge. Poor draftsmanship also raises fiduciary risk. ******************************************************************* Avoiding Charitable Trust Pitfalls ******************************************************************* The IRS on March 30 issued a guidance outlining a safe harbor procedure for avoiding the disqualification of a charitable remainder trust due to the existence of certain spousal rights under state law. ******************************************************************* Fiserv Pays $15 Million for Officers’ Deceptive Practices ******************************************************************* Failure to adequately monitor the trading practices of a former broker-dealer subsidiary has cost Fiserv $15 million. When mutual funds challenged trades placed by Fiserv Securities as possible market-timing violations, senior-level employees “schemed” to skirt the mutual funds’ security systems, according to the Securities and Exchange Commission. The market-timing transactions involved two hedge-fund clients of Fiserv Securities. ******************************************************************* SEC Needs to Step Up Assessment of Compliance Function, Says GAO ******************************************************************* Though mutual funds have stepped up compliance, a General Accounting Office study found that there was ''widespread abuse involving mutual fund investment advisers entering into undisclosed arrangements with favored customers.'' The GAO study concludes that the Securities and Exchange Commission needs to routinely assess the effectiveness of mutual fund compliance officers and review a fund's compliance report to avoid market timing, late trading, and other abuses. The recommendations are part of a 52-page GAO reported requested by the chairman and ranking minority member of the House Judiciary Committee. ******************************************************************* Fiduciary Protection Proposed by DOL for Abandoned Plans ******************************************************************* While 401(k) plans encourage long-term retirement savings, some 1,650 plans with nearly $900 million in assets are abandoned each year, according to the U.S. Department of Labor. Currently, the agency deals with plans on a case-by-case basis. To speed settlement and reduce costs and fiduciary risk, the DOL is proposing a new rule that establishes standards that will eliminate the need to obtain court approval. ******************************************************************* Blogging ''Bad'' Trustees ******************************************************************* An angry person wants a forum in which to vent. HEIRS, the self-styled beneficiary rights organization, is giving angry beneficiaries just that. ******************************************************************* IRAs Equal to Other Plans Under Bankruptcy Law, Says Supreme Court ******************************************************************* In the millions of chapter 7 personal bankruptcy petitions filed in the U.S., geography determined if a petitioner’s IRA assets were beyond the reach of creditors. Federal appeals courts were split as to whether IRA assets were exempt. Traditional, trusteed pension assets are generally beyond the reach of creditors. To settle the issue, the U.S. Supreme Court on December 1, 2004, heard oral arguments in the case of Rousey v. Jacoway. Legal experts expected the Court to rule that IRA assets are exempt. It did just that on April 4. ******************************************************************* Call It What You Want--It’s Still a Will Contest ******************************************************************* All federal courts, including bankruptcy courts, are bound by the probate exception to federal court jurisdiction, according to the Ninth Circuit Court of Appeals. This means, says Circuit Judge Robert Beezer, that federal courts ''are required to refrain from deciding state law probate matters, no matter how the issue is framed by the parties'' ******************************************************************* BSA--Customer ID Programs ******************************************************************* New interagency frequently-asked-questions issuance on customer identification programs. The FAQ reiterates previous regulatory conclusions that participants and beneficiaries of ERISA-governed employee benefit plans are not customers of the bank. Rather, depending on the account type, either the plan’s trust or the employer is the customer. This same logic holds for beneficiaries of trust accounts. There is an exception to this position, however. As part of a bank's risk assessment, according to the new FAQ, the bank may need to obtain information about the individuals with authority or control over the account, in order to verify the customer’s identity. The FAQ can be downloaded at www.occ. treas.gov/ftp/bulletin/2005-16a.pdf. -- Copyright ©2005 A.M. Publishing, Inc., Trust Regulatory News No statement in this issue is offered as or should ************ To subscribe to Trust Regulatory News send your request to subscribe@trustupdates.com or call 800-404-2116. |