Client Alert

Because of the rapidly changing conditions in the financial markets, we have established this special series of Client Alerts to advise you of the newest economic and legal developments and their wide-ranging business implications.

You undoubtedly have questions about how the recent turbulence in the financial markets may affect your personal estate plan. Womble Carlyle attorneys have been closely monitoring the situation. Here are some thoughts that you may find useful:

Merger or acquisition of financial institutions. The flurry of mergers in the financial world is unsettling, especially for those who have trust or investment management relationships with institutions that have been acquired. Though close attention is clearly required, a hasty response may be unwise, since moving your accounts may have unintended tax consequences. Assets held in trust and brokerage accounts are safe from claims of the trustee’s or custodian’s creditors, giving you time to consider your options. The terms of your trust will be unaffected even if the trustee is acquired, and there likely will be no immediate interruption in the management of your investment accounts despite a change in corporate control. Any merger or acquisition takes time. As details are released, you will learn whether the team of advisers on your account will remain the same, where they will be located, and whether any investment changes will take place.

Changes in FDIC coverage. Equally disturbing is the rash of bank failures, which may raise concerns regarding the safety of your bank deposits and your eligibility for federal deposit insurance. In the last few days, new interim rules have been released, increasing the FDIC coverage available for deposits held in the name of a revocable trust. In the past, coverage was based on the actual value of interests that would pass to certain qualifying beneficiaries at the grantor’s death. The interim rules do away with the “qualifying beneficiary” requirements, and simplify the computation of coverage in many cases. It still will be important to analyze the available coverage for each trust account, and we will be happy to assist you with any questions.

Silver lining – wealth transfer opportunities. Finally, do not overlook the wealth transfer opportunities presented by these difficult times. It is hard to get excited about depressed values, but there is no better time to carry out gifting strategies. You can move assets out of your estate at minimal gift tax cost and let your beneficiaries enjoy the “bounce” when value returns. Today’s low “safe harbor” interest rates – ranging from 2.2% to 4.3% depending on the transaction – enhance the benefits of many available gifting techniques. In addition, the North Carolina gift tax has been repealed effective January 1, 2009, further reducing the cost of moving wealth to younger generations.

We believe one of our most important duties as your legal counsel is to keep you informed during these uncertain times. Should you have any questions about any of the issues described above or any aspect of your estate plan, we would welcome your call.

The Trusts and Estates Team

Womble Carlyle’s Trusts and Estates attorneys are involved in virtually all types of trust and estate matters. The team has specific experience in estate planning, transfer tax reduction strategies, fiduciary litigation, charitable gift planning and estate, trust and guardianship administration.