September 1, 2023
Equity markets pulled back in August, as the S&P 500 was down -1.59%, US small caps -4.14%, US mid-caps -2.89%, international developed -3.76%, and emerging markets -5.50%1. The US Aggregate Bond Index declined -0.64% in August1.
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Retirement Trusts
| 9 min read
Rollover IRA: How to Rollover Your 401(k)
What Can I Do with My 401(k)?
When you have an employer-sponsored retirement account, like a 401(k) or 403(b), it is important to know your options if you leave your job. After all, you want to keep and manage your investments without having to pay a penalty for making the wrong choice. Your options include:
| 5 min read
Charitable Donation Accounts: Community Impact
Charitable Donation Accounts (CDAs) give credit unions the opportunity to give back to the very communities they serve. With the goal of better fulfilling its charitable mission nationwide, Firefighters First Credit Union (FFCU) established a charitable donation account with Members Trust Company in 2018. Since then, Firefighters First has been able to fund its foundation through investment returns, rather than operating income — by making more with their charitable donation account, they have been able to give back more to communities.
In 1935, a group of firefighters established Firefighters First Credit Union to serve firefighters and their families through quality service. Firefighters First has used its charitable donation account’s investment returns to fund the Fire Family Foundation, a nonprofit organization dedicated to providing support and financial assistance to firefighters, volunteer firefighters, and families in need.
Every year, the Fire Family Foundation provides grants, funds, and scholarships to individuals and fire charities across the country.
Through the Firefighter Relief Fund, the Foundation provides monthly grants for medical care, financial assistance, and other resources. In the summer of 2020, the Foundation partnered with the New Mexico Fire Protection Grant Council to donate 500 infrared thermometers. The donation allowed firefighters and paramedics to quickly assess their potential risk for COVID-19 exposure while responding to emergencies.
“Our firefighters were experiencing high call volumes that placed members at increased risk of exposure to the virus,” said Robert E. Larrañaga, Chairperson of the New Mexico Fire Protection Grant Council. “We express sincere gratitude to the Fire Family Foundation for their efforts in protecting our firefighters.”
One of the biggest programs of the Foundation, the Fire Family Scholarship Fund, awards $50,000 in scholarships to biological or adopted children of firefighters. The Foundation selects ten students annually based on merit, including GPA, past achievements, community involvement, and an application essay.
In 2019, the Fire Family Foundation launched its disaster relief program to provide immediate relief to the emergency needs of firefighters in federally declared disaster areas. Through this program, firefighters impacted by natural or man-made disasters, such as wildfires, earthquakes, hurricanes, or floods, are eligible to receive disaster relief kits. Each kit includes a $250 Visa gift card, a fleece blanket, hand sanitizer, notebook and pen set, and a reusable toiletry bag filled with essentials. The first kits were sent in 2020 to firefighters battling the record-setting wildfires in Northern California.
“Firefighters First established this CDA investment for the purpose of having it fund the Foundation, instead of a direct expense every year. This is the spirit of what a charitable donation account is permitted to do. Normally, credit unions can’t invest in certain securities, but through a CDA, we can get a higher return, and thereby help fund the foundation.” – Richard Dillion, Chief Financial Officer at Firefighters First Credit Union.
By making more through charitable donation accounts, credit unions give back more. For more information about Charitable Donation Accounts, please contact Jason Ritzenthaler at (813) 386-8705 or jason.ritzenthaler@memberstrust.com.
Trust and Investment products are not federally insured, are not obligations of or guaranteed by the credit union or any affiliated entity, involve investment risks, including the possible loss of principal. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
| 9 min read
What is a Trust?
A trust is a legal document that allows a third party, or trustee, to handle your assets in the event of death or incapacity.
Why do people set up trusts?
People set up trusts to help manage their assets during their lifetime and after death. In the event of death, trusts make sure that your beneficiaries receive your assets according to your wishes. They can assist you in caring for dependents that may struggle with financial inexperience, addiction, or illness. In the event of incapacity, they also ensure that you get the type of care you need.
Who is involved in a trust?
A grantor is a person or institution that has assets and creates a trust.
A trustee is appointed by the grantor to manage the trust for a beneficiary or beneficiaries. The grantor can choose a corporate trustee, relative, or other person to manage the trust. (See How to Choose A Trustee). If the trustee is a financial institution, a trust officer will be assigned to administer the trust account. Trustees should have the expertise, time, and objectivity to properly manage your assets.
A beneficiary is a person or institution that receives distributions of trust assets. Beneficiaries can be children, spouses, other relatives, charities, or any other entity named by the grantor.
Benefits of a Trust:
- Control – Trusts allow you to set specific guidelines about the management of your assets. For example, you can set parameters so distributions only take place when your beneficiary:
- Turns 18
- Enrolls in college
- Graduates from a rehabilitation program
- Uses them to fund expenses related to health, education, maintenance and support (“HEMS”)
HEMS is a standard often used in trust documents to define when certain distributions are appropriate for the beneficiary. Some examples of HEMS include:
- Health – Medical expenses, surgeries, hospitalizations, rehabilitation treatments, therapies, gym memberships, health screenings, eye or dental exams, and alternative medical treatments.
- Education – Tuition for college or technical school, career training, books, study abroad programs, and school supplies.
- Maintenance and Support – Rent or mortgage payments, insurance, updates to housing, groceries, property taxes, and other types of reasonable support.
If your beneficiary needs help managing money, you can decide to limit how much money they receive each year. You can also customize distributions for charitable organizations, universities, or any other institution named as beneficiary.
- Protection During Incapacity – Incapacity planning, addresses your needs if you lose the ability to make decisions for yourself due to accident or illness. Wills have no power until you pass away, but trusts can help in the event that you cannot make your own decisions. Both are essential for a comprehensive estate plan. If you set up a revocable trust, you serve as your own trustee unless you become incapacitated. Then, your designated successor, or back-up, trustee steps into your shoes and manages your assets, makes distributions, and ensures you receive the care you set in the document terms. To create an incapacity plan for assets outside of the trust, consider naming a power of attorney to act on your behalf.
- Tax Benefits – Depending on the status of the grantors (married, single, etc.), the value of the estate, and the terms of the trust, grantors may reduce or eliminate estate taxes.
- Avoid Probate – Trust assets are not subject to probate. Probate is the court process of administering a person’s estate after death. Probate typically involves significant time and money – heirs may need to pay attorney fees, taxes, or estate debts while they wait for the settlement.
- Privacy – Trusts provide privacy for grantors and beneficiaries. Probates are part of public record, so anyone can find information about estate assets – including their value and who received them. Details of wills become public record, while trusts remain privately administered.
What are the Different Types of Trusts?
- Revocable Trusts – A revocable trust, or a living trust, is created during the lifetime of the grantor and can be modified or revoked. If your circumstances or wishes change, it is flexible and can be amended or redrafted at any time. The grantor serves as trustee during his or her lifetime, maintaining control over all assets; however, the grantor must name a successor trustee in the event of incapacity or death. Upon incapacity or death, the revocable trust becomes irrevocable.
- Irrevocable Trusts – An irrevocable trust cannot be revoked after creation. Generally, the terms cannot be modified.
- Charitable Trusts – A charitable trust is created to provide distributions to one or more qualifying charities under 170(c) of the Internal Revenue Code, including but not limited to:
- Churches
- Synagogues
- Religious organizations
- Civil defense organizations
- Fraternal societies
A Charitable Lead Trust names one or more charities as the primary beneficiary to receive distributions. A Charitable Remainder Trust provides some distributions to other beneficiaries, like children or spouses, while preserving a balance for charity.
- Special Needs Trust – A special needs trust is created for a beneficiary to receive financial support, without disqualifying the beneficiary from government benefits, like Supplemental Security Income or Medicaid.
- Spendthrift Trust – A spendthrift trust is created to limit beneficiary access to trust funds, giving the trustee full authority over distributions. Often, beneficiaries are unable to control their spending. The grantor can help the trustee make decisions about distributions by adding the HEMS standard to the document.
- QTIP Trust – A QTIP trust is created to provide for the surviving spouse, while also saving remaining assets for future generations; it protects biological children from potential disinheritance.
What Can You Put in a Trust?
Assets can include more than your financial savings; they can include your home, business, or personal property.
- Financial Assets
- Cash
- Stocks
- Bonds
- Checking and savings accounts
- Non-retirement investment accounts
- Notes payable to you
- Real Estate
- Homes
- Land
- Farms or ranches
- Agriculture, including crops and livestock
- Commercial properties
- Personal Property
- Cars
- Boats
- Jewelry
- Antiques
- Artwork
- Clothing
- Books
- Computers or other electronic devices
- Other Assets
- Patents or copyrights
- Small business interests (stock in a closely held organization, partnership interests, or limited liability company shares)
- Oil, gas, and mineral interests
After you decide which valuable assets to include, you can choose who will receive distributions and set parameters for management and administration.
In preparing for the future, trusts can be an essential part of your long-term financial plan. It’s important to meet with a qualified estate planning attorney or trust officer about how to best protect your assets and beneficiaries.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not NCUA/NCUSIF/FDIC insured. May lose value including the possible loss of principal. No financial institution guarantee. Not a deposit of any financial institution. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
| 5 min read
Protect Your Financial Legacy with a Spendthrift Trust
Did You Know?
Research shows that people who receive an outright inheritance often squander the money.1 One study found that people of ages 20-40 lost half of all money inherited due to spending or bad investments.1 Another study found that one third of people who received an inheritance had negative savings within two years of the event.2
| 5 min read
A Guide to Special Needs Trusts
Special needs trusts offer a solution for those who want to provide assistance to someone with special needs, while maximizing the benefits of government programs.
Living with special needs involves many challenges to ensure proper care. Predicting medical expenses and evaluating resources for long-term support can be tricky and overwhelming. Regardless of age, a family member with special needs is likely to require help for a long time, if not for a lifetime.
What is a Special Needs Trust?
A special needs trust is a fiduciary and legal arrangement that provides financial assistance to someone with special needs, without affecting eligibility for government programs. Public assistance benefits, like Supplemental Security Income (SSI) and Medicaid, have strict eligibility requirements.
For example, if a beneficiary with special needs receives more than $2000 in assets, through a direct transfer, court settlement, or inheritance, he or she will not qualify for SSI or Medicaid benefits.
By creating a special needs trust, the beneficiary will remain eligible for state and federal assistance.
What are the Different Types of Special Needs Trusts?
- First-Party Special Needs TrustsA first-party special needs trust is typically created when a person with special needs has assets—or expects to receive assets through an inheritance, divorce, or legal settlement—that would prevent eligibility for government benefits. The beneficiary’s own assets fund the irrevocable trust, and the trust language must require that the account balance will reimburse the state Medicaid agency upon the person’s death.
- Third-Party Special Needs TrustsA third-party special needs trust is created with the assets of family or friends to provide financial assistance to an individual with special needs and preserve the beneficiary’s access to SSI and Medicaid. There is no reimbursement requirement for a third-party special needs trust.
Third-party special needs trusts can also benefit additional beneficiaries. For example, the trustee has the power to authorize payments for family and friends to encourage travel, activities, and relationship building with the beneficiary.
To learn more about trusts, see What is a Trust?.
The benefits of a special needs trust include:
- Access to Government Assistance ProgramsPublic assistance programs, like SSI and Medicaid, provide cash benefits and healthcare coverage for individuals who qualify. In determining eligibility, the Social Security Administration does not consider trust assets as income. Regardless of the value of the trust, the beneficiary will qualify for assistance while still benefiting from additional resources.
- Additional Income and Resources Special needs trusts help cover additional expenses, such as traveling, education, rehabilitation, or technology, to ensure quality of life for beneficiaries.
- Flexibility of Trust Assets Special needs trusts can be funded with cash, stocks, real estate and life insurance.
- Ensure Long-Term Care Special needs trusts ensure that assets will be used as intended, and the beneficiary will maintain a desired quality of life in the future.
How Do I Set Up a Special Needs Trust?
Given the complexity and longevity involved with administering a special needs trust, one of the most important decisions you can make is selecting a trustee.
The rules surrounding eligibility for government programs are complex and ever-changing, and a mistake could compromise eligibility for supplemental care. For more information, see How to Choose a Trustee.
Special Needs Trust Resources
Fortunately, you don’t have to take this journey alone. At Members Trust Company, we have developed best practices to support you and your family.
We specialize in administering Special Needs Trusts and strive to provide accessible support to those caring for loved ones with special needs. There’s a reason trust is our middle name.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not federally insured, are not obligations of or guaranteed by the credit union or any affiliated entity, involve investment risks, including the possible loss of principal. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
| 9 min read
What You Need to Know About Estate Planning
An estate plan defines who you want to manage or receive your assets in the event of your incapacity or death.
Did you know that “estate” is a Middle English word derived from the Latin term for status? Since the 13th Century, this archaic word has been used to describe a person’s social standing or rank. Another definition for the word estate is a large house situated on an extensive area of land in the countryside. Maybe it’s these exclusive definitions for the term “estate” that mislead people into believing that estate planning doesn’t apply to regular people. The truth is that there is also a legal definition for the term “estate” and it simply refers to all the property you own.
What Documents are Included in an Estate Plan?
A comprehensive estate plan typically includes four important documents:
1. Revocable Living Trust
A revocable living trust is a legal document that includes two different plans, describing what you want to have happen: (1) to your property after you’re gone; and (2) to you, if you become incapacitated.
2. Pour-Over Will
A pour-over will is a legal document that ensures any remaining assets will automatically transfer or “pour over” into an established trust. If the creator of a trust forgets to title an asset in the name of the trust, the pour-over will informs the probate court that the asset should be distributed to the trustee and beneficiaries according to the terms of the trust.
3. Financial Power of Attorney
A financial power of attorney (POA) is a legal document that authorizes someone to act upon your behalf in financial matters.
4. Advance Healthcare Directive
An advance healthcare directive is a legal document that specifies what actions should be taken for your health if you are no longer able to make decisions because of illness or incapacity.
Do I Need an Estate Plan?
If you do not create an estate plan, the state has an estate plan for you.
The law of intestate succession is your state’s default estate plan for those who fail to plan ahead. According to the laws of your state, a court will distribute your property after death. State laws vary, but generally, the property will be passed to a surviving spouse and/or other bloodline relatives.
By failing to draft an estate plan, you may disinherit an unmarried partner, friends, and charities.
What is a Revocable Living Trust?
A will allows you to name who you want to receive your property after your death, so it is better than not planning at all. However, planning with a revocable living trust is ideal.
A revocable trust lets you define what you want to have happen: (1) to your property after death; and (2) to you, if you become incapacitated. It is established during your lifetime, typically to avoid probate and conservatorship proceedings and to exert post-death control over trust assets.
Since a Revocable Living Trust is revocable, you can change it as your circumstances or wishes change. See What is a Trust?
What Is Probate And How Does It Affect My Estate Plan?
Probate is the court-supervised process of administering a deceased person’s estate. The primary purpose of probate is to distribute your assets to the correct people, beneficiaries identified in your will or heirs as determined by state law.
Probate has other purposes as well:
- Probate protects creditors by making sure all outstanding debts are paid before money is distributed to beneficiaries;
- Probate also ensures that the county and state receive their share of probate taxes and other fees.
Before the court distributes your estate, creditors and taxes must get paid. Many states require that the probate process lasts for a minimum of a year, in order to give creditors time to present their claims. In the meantime, your money will not be available to loved ones.
What Should I Know About Probate?
Probate varies by state and country, but the following factors are universally true:
1. Public Process
Your will is recorded in public records. If you don’t have a will, a list of your heirs is recorded publicly. Many jurisdictions require a listing of assets, so people can find out just how much your children will receive from your estate, putting them at risk for solicitation.
2. Time-consuming Process
Typically, probate is more time-consuming than necessary. Many jurisdictions require you to wait weeks or months for the appointment to open your estate. These jurisdictions also have set timeframes, often a year, that your executor must wait before distributing money to your heirs or beneficiaries. Courts continue to supervise the process through completion, which can add significant time due to the detailed requirements of estate accountings.
3. Expensive Process
Court fees and probate taxes are an extra cost to your estate. A probate tax of 0.1% may not seem like much in the abstract, but it would be calculated on your gross estate. For example, if your house is worth $500,000 and your mortgage balance is $400,000, your estate must pay $500 just to initiate probate. Often, your heirs or executor would 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. In addition, most courts impose various filing fees on the documents that your estate is required to file: one filing fee for your will, one for the list of heirs, one for the executor’s affidavit, one for the inventory of your estate, and one annually for each accounting until the probate is closed – totaling to several thousand dollars.
Assets owned by a trust are not subject to probate, which is one benefit of including a trust in your comprehensive estate plan.
What Else Does An Estate Plan Do?
You may want to consider creating an estate plan that includes a trust if one or more of the following circumstances or priorities apply to you and your family:
1. Preserve Family Harmony
By designating an objective third party trustee, you can relieve loved ones of the burden in dealing with legal complexity during a difficult time.
2. Benefit Loved One with Special Needs
A trust can provide an inheritance to a loved one with special needs while preserving his or her eligibility for government benefits like Medicaid and Supplemental Security Income.
3. Support Children From a Former Relationship
If you’re married with kids from a previous relationship, a trust can help you protect your biological children from potential disinheritance.
4. Cater to Financially Inexperienced Beneficiaries
By setting up a trust, you can restrict trust distributions, reducing the likelihood that your loved ones will squander their inheritance.
5. Include Distant Children
If you live far from loved ones, it’s important to plan ahead to ensure a trustee is designated to manage your financial affairs upon your incapacity or death.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not federally insured, are not obligations of or guaranteed by the credit union or any affiliated entity, involve investment risks, including the possible loss of principal. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
| 5 min read
QTIP Trust: Protect Your Child’s Inheritance
Who Needs a QTIP Trust?
Married people with kids from a former relationship, a blended family, tend to set up QTIP trusts. A QTIP trust allows people to leave inheritance to both the surviving spouse and children from a former relationship after death.