How does a trust work?
Generally, an individual creates and funds the trust (“grantor”), and names himself or herself as both the trustee and sole beneficiary for his or her lifetime. The grantor also names a back-up trustee, as well as the beneficiaries who will receive any assets that remain in the trust at the grantor's death.
To ensure that the trust fulfills its objectives, the trust must be funded after it is created. Funding the trust means transferring legal title from the grantor into the name of the trust. The grantor continues to manage trust assets during his or her life.
In the event the grantor becomes incapacitated (e.g., from illness or injury), the successor trustee can immediately step in to take over the management of the trust on the grantor's behalf, avoiding the need for the grantor's spouse or other family members to petition the court to appoint a conservator.
At the grantor's death, the successor trustee steps in and carries out the grantor’s wishes as set forth in the trust document, bypassing the probate process. This can save time and money, and can minimize some of the burden of settling the grantor's estate.
What is probate?
Probate is the court-supervised process of administering a deceased person’s estate; this process generally involves collecting a deceased person’s assets, paying debts and taxes and finally distributing remaining assets to heirs. Probate varies by state and even county to county. But certain things are universally true.
. Probate is a public process. Your will is recorded in public records. If you don’t have a will, a list of your heirs is recorded publicly. That means unsavory salesmen can and do comb probate records to find out who is about to inherit money.
. Most jurisdictions have set timeframes that your executor must wait before distributing money to your heirs/beneficiaries. This protects your creditors and can result in your money sitting in limbo for a year after your death before your family can access it for their needs.
Can be Expensive
. While court fees and probate taxes are generally reasonable, they are still an extra cost to your estate that erode the amount your loved ones would otherwise receive. All too frequently, your heirs or executor have to pay out-of-pocket because they do not have access to your money until after probate has been officially started by the court. Additionally, most probate processes require the assistance of an attorney to file and navigate, resulting in an additional cost that can be expensive depending upon the size and complexity of the probate estate.
Why not just a will?
A will is an important estate planning tool, which is also typically drafted in connection with a trust. The drawback of planning with only a will is that a will’s power only takes effect upon your death. In other words, a will cannot help you plan ahead for incapacity. So, if at some point you become unable to make your own financial decisions, your will cannot help you. A trust, on the other hand, does double duty; whoever you select to serve as your back-up trustee can step into your shoes and carry out your wishes in the event of your death or incapacity.
Why designate Members Trust Company as your back-up trustee?
Guided by the strength and values of America’s Credit Unions, Members Trust Company was formed to provide investment management, trust administration and estate settlement services to credit union members and private clients with estates large and small—delivering objective advice, competitive results and the personal attention everyone deserves, including you.
Why designate an institution as your back-up trustee?
. Losing a loved one is an emotionally painful experience that can have a real effect on the mind and body. Studies show that grief interferes with the ability to think clearly, to make decisions and problem solve. A corporate trustee has the emotional wherewithal to handle legal and financial matters and communicate effectively to beneficiaries.
. If you’re like most people, you want your loved ones to get along better after you’re gone, not worse. But the loss of a loved one produces strong emotions. If you layer legal complexity and financial stressors on top of grief and sorrow, it can fuel family conflict. An institutional trustee is fair, objective and staffed with legal and investment professionals who have a legal duty to act in the best interest of your beneficiaries.
Peace of Mind
. One benefit of a revocable living trust is the ability to bypass the probate court process, but it also means there will be no checks and balances on your successor trustee to protect against the risk of good faith mistakes. A corporate trustee is regularly audited to ensure appropriate policies and procedures are in place to ensure proper trust administration.