Trusts are often the foundation of estate planning – a way to provide for the efficient, orderly transfer of wealth to family or other beneficiaries. Different types of trusts provide different benefits. They can help you provide financial management for your spouse, children or siblings after death; make contributions to charitable organizations; reduce estate taxes; avoid the costs and headaches associated with probate; or provide for the administration of your finances should you become unable to do so for yourself.
The First Command Bank Wealth Management & Trust Services Group provides fiduciary services for clients who are typically seeking individualized investment advice, comprehensive asset management, attentive personal service and convenience. You may wish to consider utilizing the Group’s trust services if you wish to:
- Reduce estate taxes
- Maintain privacy of your financial matters
- Shield assets from potential creditors
- Avoid the expense and potential delay of the probate process in your state of residence
- Avoid the expense and potential delay of ancillary probate in other states in which you may own real estate
- Preserve assets for your children or grandchildren until they reach a certain age, or throughout their lifetime
- Provide for ongoing management of assets for your family who may not have the time or experience to manage the assets
- Provide for the management of your own assets in the event you become incapacitated
- Provide benefits to your favorite charity
- Provide for special needs of a handicapped loved one
- Hold assets for the benefit of your minor children or grandchildren
Common Types of Trusts You May Want to Consider
Trusts are legal entities that create a relationship between you, known as the grantor or trustor, and a trustee. An attorney prepares the trust document naming the trustee, which can be an individual or an institution (like First Command Bank). As a trustee, First Command Bank has a fiduciary duty to the trust and must always act in accordance with the terms specified by you in the trust instrument.
- Living trusts. This tool allows you to pass assets to your heirs without going through the probate process. But, perhaps more importantly, living trusts can help insure that your assets will be used for your benefit and welfare in the event you become unable to manage your own affairs. And, for many people, the most important feature of the living trust is the privacy it affords — contents of a living trust are not public record like the contents of a will are once it is filed for probate.
- Bypass Trusts. Also called a credit shelter trust, marital trust or family trust, this type of trust is designed to help a married couple reduce estate taxes. The $5 million-plus estate exemption currently in place makes the bypass trust more appealing to the very wealthy.
- Special Needs Trusts. This type of trust provides financial support to a person who is disabled and unable to earn sufficient income to support him or herself. To avoid the risk of interfering with the support which may be otherwise available from federal or state social service agencies, the trust’s assets typically cannot be used for housing, clothing or food. A special needs trust may be appropriate for you if you have a family member who has a disability that limits his or her ability in any way.
- Spendthrift Trusts. Instead of leaving an heir a bucket of money that he or she may quickly squander, you might want to consider placing that inheritance into a spendthrift trust. The trust would then provide for distribution of the inheritance at a later date, perhaps when the heir reaches a more mature age, or may provide for distributions at the discretion of the trustee, to assist with such things as college or medical expenses. If you are concerned about leaving your assets outright to your children or other heirs, a spendthrift trust may be the solution.
- Charitable Remainder Trusts. If you plan to donate assets to a charity after death, you may find it beneficial instead to establish a charitable remainder trust (CRT) now. By doing so, you gain a tax deduction now, something which may be especially appealing with the prospect of rising income tax rates. You can name yourself as the current income beneficiary, giving you a source of income now, and the charity receives the remainder at your death.
- Irrevocable Life Insurance Trusts. The irrevocable life insurance trust (ILIT) provides an accessible means of avoiding estate taxes on life insurance proceeds. Provided certain requirements are met, the proceeds of the insurance policy are not included in your estate, and therefore not subject to estate taxes. As the name says, ILITs are irrevocable. The trust may not be changed by you or anyone else once it is established.
- Qualified Terminal Interest Property (QTIP) Trusts. If you are in a second-marriage situation, with children from a previous marriage, you may want to consider a QTIP trust. Instead of leaving assets outright to your current husband/wife upon death, you may leave your assets to the QTIP trust. The trust document provides that the income from the QTIP trust goes to your surviving spouse during his/her lifetime, and the assets remaining at your spouse's death go to your children. Because your surviving spouse does not own the assets outright, he/she cannot direct where the assets go, thus ensuring that your children ultimately receive the assets from your estate.
Benefits of a trust
Trusts are flexible, varied and complex. Each type has advantages, which may include:
- Putting conditions on how and when your assets are distributed after you die
- Reducing estate and/or gift taxes
- Protecting assets from creditors and lawsuits; and
- Naming a successor trustee, who not only can manage your trust after you die, but can also be empowered to manage your assets if you become unable to do so.
You should remember that any assets you want included in a trust must be retitled into the name of the trust.
Why Consider Using a Corporate Trustee?
When you establish a trust, you need to name someone, a trustee, to manage the assets controlled by the trust. While you can choose just about any competent adult, there are very good reasons why you should consider a corporate trustee like First Command Bank:
- Experience. Because corporate trustees manage trusts on a daily basis, we are familiar with all kinds of trusts, tax and estate planning strategies, and the legal responsibilities associated with serving as a trustee.
- Oversight. Corporate trustees are routinely examined by regulatory agencies such as the Office of the Comptroller of the Currency. Also, most courts consider trust departments as “experts” and expect us to meet higher standards than a non-professional.
Further, we are required to segregate the duties of our employees who work in the custody and investment management business. Under such an organizational chart, no single individual is able to authorize, execute and review the processing of trust or investment assets. These dual control procedures ensure that one person, acting alone, cannot complete all phases of a transaction or transfer of your assets.
- Objectivity. Corporate trustees such as First Command Bank will follow the instructions provided to us by you objectively and faithfully, something which family members may be unable to do. We provide independent, experienced and objective judgment in financial affairs.
- Tenure. Corporate trustees do not have a lifespan — we will be available to serve as trustee for years to come.
- Team Players. The Trust and Investment Officers of the Wealth Management & Trust Services Group work closely with you and your professional advisors and with an investment committee selected for their professionalism and expertise.
- Availability. Family members or friends may be too busy with their own affairs to provide the necessary attention to manage your financial affairs. If you have a modest estate and a relatively simple trust, a family member may be an appropriate choice to serve as trustee. However, if you have a larger estate and a variety of assets, a corporate trustee would be appropriate.
Capacity to Serve. First Command Bank can serve in an administrative capacity as trustee, successor trustee, or co-trustee.
- Trustee — An individual or organization which holds or manages and invests assets for the benefit of another. The trustee is legally obliged to make all trust-related decisions with the beneficiary's interests in mind.
- Successor trustee — You may prefer to have a spouse or close family member serve as the initial trustee, but name a corporate trustee like First Command Bank to serve as a successor trustee. This provides for continuous management of your trust assets in the event of the death or disability of the original trustee. Upon acceptance of our appointment as successor trustee, First Command Bank would assume the duties of the previous trustee.
- Co-trustee — In certain situations, it may be appropriate for you to name both an individual and a corporate trustee like First Command Bank to serve as co-trustees. This allows for professional management of your assets, while still involving someone close to you in the administration of the trust. First Command Bank, when serving as co-trustee, will follow the terms of the governing instrument, which may require consultation with the co-trustee on discretionary distributions and/or investment decisions to be made on behalf of the trust beneficiaries.
Consider these real-life situations which you may be experiencing — a corporate trustee like First Command Bank could help:
- My spouse took care of all of our investments. Since he/she died, I don’t know what to do or who to trust.
- I don’t know where I should invest my money — I’m so confused by everything I read and hear.
- I just received a large inheritance. I’ve never had to invest this much money before.
- I travel a lot now (business or pleasure) and I just don’t have time to manage my investments like I used to.
- I recently sold my business. Now, I just need to figure out how to invest my money.
- I worry about what will happen to me and my money if I become mentally or physically incapacitated.
- I’m worried about my mother/father. I don’t have the time to help her/him with finances, and I’m worried she/he might be taken in by some scam.
- One of my children is simply not responsible with his own money. I shudder to think what will happen to his inheritance — my money! — after I die.
- I want my children to be responsible and productive — not spoiled or lazy from a large inheritance.
- Now that I am retired, I want the freedom to travel, play golf and do the things I’ve always wanted to do. I don't want to worry about my investments all of the time.
- I have a child with special needs — I worry about what will happen to him when something happens to me.
How safe are trust assets?
Even if a bank or trust company fails, trust assets are safe. By law, trust assets must be kept separate from all other bank assets. For example, they cannot be loaned out, mixed with the corporate trustee's own assets or used to satisfy its creditors. Because of these safeguards, trust assets are not insured by the FDIC.
Trusts are an important part of estate planning. Some common benefits and objectives of using trusts include reducing taxes, avoiding probate, protecting estates, providing funds for educational purposes, and benefiting charities.
As a trustee, First Command Bank has a fiduciary duty to the trust and its beneficiaries. We must always act in accordance with the terms of the trust instrument.
Utilizing a corporate trustee, such as First Command Bank, offers many benefits. We possess expertise in serving as a trustee and have investment and money-management skills that a family member may not have. A corporate trustee represents an entity which has longevity, is unlikely to take sides in family conflicts, and can spend whatever time is required on managing the trust.