If you’re putting together an estate plan, there are a few key questions you’ll need to answer. Here are 10 of the most important questions to ask yourself (or your estate planning attorney) to ensure that your plan is complete and effective.
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| 5 min read
Members Trust Company Announces Appointment of Ken Lako as President & CEO
TAMPA— March 15, 2023 — Members Trust Company (MTC), a nationally chartered trust company that provides trust and investment services to credit union members throughout the United States, today announced the appointment of Kenneth E. Lako as President and Chief Executive Officer.
| 3 min read
Monthly Investment Commentary & Economic Outlook
March 1, 2023
Equity markets pulled back in February, as the S&P 500 was down -2.44%, US small caps -1.23%, US mid-caps -1.81%, international developed -2.10%, and emerging markets -6.02%1. The US Aggregate Bond Index declined -2.59% in February1.
| 5 min read
What is a Charitable Trust & How Does it Work?
Many people may not realize that charitable planning intersects with estate and business succession planning. Combining a charitable strategy and the sale of a business is a great way for owners to minimize taxes and provide equity for the next phase of their lives.
Charitable remainder trusts were authorized by the 1969 Tax Relief Act. Since then, they have become common vehicles for charitable giving. High-net-worth and middle-class individuals look to the various forms of charitable trusts as a way to give more to their favorite charities while benefiting from tax deductions. In many cases, charitable trusts can even allow a person to make a charitable gift they might not otherwise be able or inclined to make.
By implementing a complementary charitable planning strategy, a business owner can:
- Reduce and possibly eliminate income, capital gains, and transfer taxes;
- Preserve wealth;
- Generate a reliable stream of income; and
- Protect assets from creditors.
Charitable Trusts come in two forms: Lead Trusts and Remainder Trusts. In both cases, the donor makes a gift to the trust. The trust makes regular payments for a period of time, then distributes the remainder at the end of the term.
How Do Charitable Lead Trusts Work?
A Charitable Lead Trust (“CLT”) provides a stream of income to one or more charities as the “lead” beneficiary. The trust can be set for a specific term of years or for the life of a person. After the income stream ends, the remaining balance will be distributed to other beneficiaries, like spouses, children, or other loved ones. For more information about trusts, grantors, and beneficiaries, see What is a Trust?
When establishing a Charitable Lead Trust, the grantor pays gift tax on the expected final distribution to family members. This is calculated by using the § 7520 interest rate in effect at the time of creation. If the trust assets grow at a higher rate than the § 7520 rate, the additional growth passes to the grantor’s family without any estate tax due. In other words, the grantor will pay less overall estate tax while donating to a meaningful cause.
How Do Charitable Remainder Trusts Work?
A Charitable Remainder Trust (“CRT”) provides a stream of income to one or more individual beneficiaries, while preserving its remaining balance for charity. Similar to the CLT, the CRT can be set for a term of years (up to 20 years for the CRT) or for the lifetime of an individual. After the income stream ends, the remaining balance of the CRT will be distributed to one or more qualifying charities. Then, the grantor will receive deductions for federal income, gift, and estate tax purposes.1
In order to qualify for these tax deductions, the CRT must pass the IRS’ 5% probability of exhaustion test—there must be less than a 5% chance the trust will pay out its entire principal to the individual beneficiaries using the IRS discount rate.
In the year the grantor creates the CRT, he or she also receives an immediate income tax deduction that is equal to the present value of the expected gift to charities. Generally, the grantor names himself or herself, if not the spouse, as the income beneficiary of the trust, in which case there are no gift tax issues.
Grantors of CRTs must choose between two forms of income streams: Unitrusts or Annuity Trusts.
Qualifying Charities
To be designated as a beneficiary of a Charitable Lead Trust or Charitable Remainder Trust, the charity must qualify under section 170(c) of the Internal Revenue Code (IRC). Qualifying charities generally include 501(c)(3) organizations, but are not limited to churches, synagogues, religious organizations, civil defense organizations, fraternal societies, and other organizations that operate solely for religious, charitable, educational, scientific, or literary purposes. (IRC 170(c))
If the named charity loses its qualification under section 170(c), an alternate charity can be selected. The grantor may name alternate or successor charities and beneficiaries during the creation of the trust. However, the grantor may also leave the remainder beneficiary “open” by reserving the power to designate a successor beneficiary or charity after the trust’s formation.
Choose Wisely: The Importance of Selecting the Right Trustee
Given the complexity and longevity involved with a Charitable Trust, one of the most important decisions a donor can make is selecting a trustee. A corporate trustee can be completely objective, which is an important quality when there are—or may be—contentious family members. A corporate trustee has no vested interest in the income or the remainder of the trust and is in the best position to balance the interests of the various parties. Corporate trustees also have expertise in taxation and investments. There are other benefits as well:
• Professional asset management
• Legal proficiency to administer terms of trust
• Regulated entity; oversight & accountability
• Legal duty to act in clients’ best interest
• Perpetual appointment
• Capital & insurance
For more information about corporate trustees, see How To Choose a Trustee: 4 Key Considerations.
Members Trust Company as Trustee of a Charitable Trust
Founded in 1987 by America’s Credit Unions for credit unions, their members and the general public, Members Trust Company is the first national trust and investment firm providing financial stewardship, investment management, and trust services for both credit union and non-credit union accounts.
With our Main Street values comes Wall Street experience…without the ego or exorbitant fees. Our team of fiduciary administrators are highly credentialed and experienced. Our team of investment professionals hold the highest Chartered Financial Analyst® designation and have been continually recognized in the industry as subject matter experts in trust and investment solutions, big and small.
To speak with someone about Charitable Trusts, call us at (888) 727-9191 or visit https://memberstrust.com/contact.
External sources: (1992) Hoisington, W. The Truth About Charitable Remainder Trusts (How To Separate The Help From The Hype). The Tax Lawyer.1
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. 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
What is the Difference Between a Will and a Trust?
Many people use the terms “will” and “trust” interchangeably, but these documents are very different. In many cases, it’s wise to set up both a will and a trust as components of a comprehensive estate plan.
What is a will?
A will is a legal document that names who you want to receive your property upon your death, defines final wishes, and nominates a guardian for surviving minor children.
An executor is someone responsible for carrying out the wishes of the will.
What is a trust?
A trust is a legal document that establishes what you want to happen:
- To your property after you’re gone
- To you, if you become incapacitated.
In short, both a will and a trust allow you to: (1) make your wishes known; (2) choose a person to settle your affairs on your behalf; (3) decide who receives your assets upon your passing.
What are the Differences Between a Will and a Trust?
- TimingA will does not come into effect until after death, whereas a trust takes effect immediately.
- ControlIf you become incapacitated and have only created a will, the court will appoint a guardian or conservator to manage your affairs.In contrast, trusts allow you to serve as trustee over your assets during your lifetime. If you become incapacitated, the back-up trustee designated in your trust manages your assets for you and your beneficiaries. You have control over who you name as your successor trustee, so a court-appointed guardian or conservator is unnecessary.
For more information about how to choose an effective trustee, see How to Choose a Trustee.
- ProbateUpon death, wills must be submitted to the probate court for administration. Probate is the public court process that distributes assets to the correct people, including beneficiaries identified in your will or heirs as determined by state law.In many cases, probate can be a time-consuming, expensive process. To learn more about probate, see What You Need to Know About Estate Planning.
If you have a trust in place when you pass away, your trustee will step in to manage and distribute your assets according to the terms you set. No probate court involvement is necessary, and unlike probate, trusts are privately administered.
Differences Between A Will And A Trust
| Features & Benefits | Will | Trust |
| Effective date | Death | Death & incapacity |
| Avoids probate | No | Yes |
| Provides incapacity plan | No | Yes |
| Requires funding | No | Yes |
| Private | No | Yes |
| Provides maximum control to creator | No | Yes |
| Names a guardian for minors | Yes | No |
Do I Need a Trust If I Have a Will?
A comprehensive estate plan will typically include both a will and a trust. By creating both, you will keep control over your assets in the events of incapacity and death, avoid probate, maintain privacy, name a guardian for underage children, and ensure that family, friends, and charitable organizations receive distributions in accordance with your wishes.
They are both 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.
This article is for informational and educational purposes only and is not intended to provide specific legal or tax advice. For specific legal or tax advice, please consult with your attorney and/or accountant. Trust and Investment Products are uninsured, not guaranteed by Members Trust Company, any credit union or any federal agency. Any investment exposes an investor to investment risk, including the possible loss of principal.
| 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:
- ControlTrusts 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:
- HealthMedical expenses, surgeries, hospitalizations, rehabilitation treatments, therapies, gym memberships, health screenings, eye or dental exams, and alternative medical treatments.
- EducationTuition for college or technical school, career training, books, study abroad programs, and school supplies.
- Maintenance and SupportRent 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 IncapacityIncapacity 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 BenefitsDepending 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 ProbateTrust 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.
- PrivacyTrusts 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 TrustsA 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 TrustsAn irrevocable trust cannot be revoked after creation. Generally, the terms cannot be modified.
- Charitable TrustsA 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 TrustA 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 TrustA 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 TrustA 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.
This article is for informational and educational purposes only and is not intended to provide specific legal or tax advice. For specific legal or tax advice, please consult with your attorney and/or accountant. Trust and Investment Products are uninsured, not guaranteed by Members Trust Company, any credit union or any federal agency. Any investment exposes an investor to investment risk, including the possible loss of principal.
| 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.
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