© 2007 Northern Trust Corporation northerntrust.com The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. © 2007 Northern Trust Corporation northerntrust.com Trends in Trust Law:Implications for Estate Planning and Fiduciary Administration September 11, 2007 R. Hugh Magill Executive Vice President

2 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Demographic Trends (Fades) Death & Taxes2001 Tax Act (EGTRRA)Continued evolution of Estate Planning Strategies Changes in Capital Markets Prudent Investor RuleEvolution of Asset Management Practices Decline in YieldsUnitrusts and Principal / Income Adjustments Changes in Asset Allocation Client MobilityUnivorm Trust Laws Non- Uniform State Tax Laws Changes in Estate Planning & Trust Administration Wealth FormationTax Rate Environment Asset Diversification Deal Flow Liquidity Philanthropy

3 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Asset Concentrations and the Duty of Diversification Maximizing Opportunities Minimizing Risks

4 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Concentrations and Trust Documents Retained Assets Retention is permissible Retention is strongly suggested Retention is mandatory

5 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Concentrations and Trust Documents Retained Assets Retention is permissible Retention is strongly suggested Retention is mandatory Fiduciary Authority Sole trustee Co-trustees Advisors Advisory Committees

6 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Concentrations and Trust Documents Retained Assets Retention is permissible Retention is strongly suggested Retention is mandatory Fiduciary Authority Sole trustee Co-trustees Advisors Advisory Committees Modification of Fiduciary Responsibility Hold Harmless / Indemnification Agreements Virtual Representation Court-Ordered Reformation

7 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Concerns About Diversification Adverse Income Tax Consequences Unfamiliarity with other Asset Classes Loss of Control Performance Expectations Impact on Portfolio Yield Fees

8 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Reasons for Non-Diversification Purpose of Trust Legacy Holdings Termination Date of Trust  Interests of Beneficiaries  Step-Up in Basis Illiquidity Loss of Controlling Interest Related Trusts Beneficiaries’ Assets Adverse Income Tax Consequences

9 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Retention Language Identify the Asset Waive the Duty to Diversify Articulate the Reasons for Retention Address Asset “Conversion” Issues  Equities: Mergers, Acquisitions, Spin-offs  Real Estate: Sale, Reinvestment Identify the Circumstances under which, and by Whom, Sale Should be Considered

10 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Concentration Risk Management Process Definition and Identification Review Process Evaluation of Fiduciary Responsibility Evaluation of Strategies Implementation and Periodic Review Documentation

11 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Unitrust Conversions When Should a Fraction Trump a Yield?

12 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Reviewing Trusts for Potential Conversion Income only (Mandatory or discretionary) Income with narrow power to discrete principal Income with moderate power to discrete principal Income with broad power to discrete principal

13 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Unitrust Conversions – Issues to be Analyzed Governing Law Nature, purpose, duration of trust Settlor’s intent Duty of impartiality vs. permissible partiality Beneficiary expectations Discretionary authority over principal distributions

14 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Unitrust Conversions – Portfolio Issues Asset composition Asset allocation Portfolio size Reinvestment alternatives Re-allocation impact Investment management limitations Fixed income; taxable vs. tax-exempt

15 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Conversion Analysis – Critical Assumptions Time horizon Inflation rate Capital market assumptions Tax impact of portfolio re-allocation Rebalancing frequency Management costs Payout ratio Liquidity needs Return methodology

16 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. 50 / 50 Asset Allocation Large Value Stocks 50% Corporate Bonds 50% $2.5 MM $5 Million Portfolio $2.5 MM

17 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. $5 Million Portfolio 0%4%8%12% Conservative Moderate Aggressive 50 / 50 Asset Allocation Efficient Frontier Standard Deviation Return 50 / 50 Asset Allocation

18 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. $5 Million Portfolio 50 / 50 Asset Allocation Monte Carlo Simulation Analysis – 3% Payout Payout 3% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $150,000$164,393$183,151$203,917$227,026 $5 $6.14 $4.30 $14.65 $3.67 $7.96 $10.27 $12.29 $3.89 $3.61 $3.69 Inflation: 2.5%

19 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. $5 Million Portfolio 50 / 50 Asset Allocation Monte Carlo Simulation Analysis – 4% Payout Payout 4% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $200,000$210,706$223,412$236,726$250,821 $6.09 $4.25 $12.08 $2.96 $5 $7.60 $9.35 $10.65 $3.69 $3.26 $3.16 Inflation: 2.5%

20 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. $5 Million Portfolio 50 / 50 Asset Allocation Monte Carlo Simulation Analysis – 5% Payout Payout 5% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $250,000$253,089$255,265$257,281$259,302 $6.04 $4.20 $9.95 $2.44 $5 $7.26 $8.50 $9.21 $3.50 $2.93 $2.71 Inflation: 2.5%

21 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Diversified Portfolio Cash Equivalents: $188, % $4,714,249 Million Portfolio High Yield Bonds: $235, % Large Value Stocks: $1,579, % Small Value Stocks: $117, % Mid Cap Stocks: $212, % Real Estate: $282, % International Stocks: $707, % Emerging Equities: $117, % Corporate Bonds: $1,131, % Commodities: $141, %

22 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. 0%4%8%12% Conservative Moderate Aggressive Diversified Portfolio Efficient Frontier $4,714,249 Million Portfolio Standard Deviation Return 16% Diversified Portfolio

23 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Diversified Portfolio Monte Carlo Simulation Analysis – 3% Payout Payout 3% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $141,427$158,589$181,420$207,360$236,995 $4.71 $5.85 $4.09 $16.43 $3.58 $4,714,249 Million Portfolio $7.96 $10.48 $13.35 $3.67 $3.65 $3.55 Inflation: 2.5%

24 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Diversified Portfolio Monte Carlo Simulation Analysis – 4% Payout Payout 4% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $188,570$203,301$221,369$240,831$261,989 $5.80 $4.04 $13.57 $2.92 $4,714,249 Million Portfolio $4.71 $7.60 $9.54 $11.57 $3.48 $3.29 $3.05 Inflation: 2.5%

25 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Diversified Portfolio Monte Carlo Simulation Analysis – 5% Payout Payout 5% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $235,712$244,234$253,009$261,864$271,012 $5.70 $3.99 $11.18 $2.37 $4,714,249 Million Portfolio $4.71 $7.26 $8.67 $10.02 $3.30 $2.97 $2.61 Inflation: 2.5%