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| Trusts |
Estate Tools for the Trusting
Thomas M. Kostigen
02/02/2004
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Aside from a complete lack of control over investment decisions, significant drawbacks to RMAs include a lack of access to the assets in the RMA and a reduction or elimination of the discount in the event of a withdrawal prior to the end of the holding period (resulting in a potentially larger tax bill). These drawbacks—despite the unease the Strangi case has instilled in those currently relying on family limited partnerships—have challenged financial planners attempting to persuade their clients of the RMA’s value. Randy Fox, a certified financial planner at Wealth Strategies Counselors in Naperville, Ill., believes that RMAs are nevertheless overtaking family limited partnerships in popularity for two reasons: "First, the IRS’s recent attacks on partnerships. And second, RMAs are easier to set up and simpler to understand."
 "[RMAs] have gotten much more attention over the last several months because of the Strangi case," notes David Handler, a partner in the Trusts and Estates Practice Group of Kirkland & Ellis, largely credited with creating the RMA strategy. "We’ve received many calls from bankers."
What is in an RMA?
Clients establish an RMA through a bank or trust company, which hires an investment manager or series of investment managers to invest and oversee the account. These are usually publicly traded securities, which are then under the full control and discretion of the bank or trust company. Indeed, the RMA’s covenants usually stipulate that the owner relegate control for a certain period of time and have no say in how the assets are managed. The client can suggest managers, but the bank or trust must choose, monitor, hire and fire them. The institution also determines the asset allocation. As with a blind trust, those who open RMAs must have profound confidence in the competence of their financial institution.
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