FINANCE

Trust Faq

What is the purpose of a living trust?

A revocable trust (living trust) is created for the purpose of holding ownership to an individual’s assets during the person’s lifetime, and for distributing those assets after death.

Who are the parties of a living trust?

The living trust document itself names three different parties. The individual (or couple) that establishes the trust is named theGrantor(also referred to as theTrustor ).

TheTrusteeis the person named by the Trust as the controller of the Trust’s assets (the grantor and trustee can be the same individual(s)).

TheBeneficiariesare the heirs that will benefit from the Trust once the grantor’s have passed away.

Who controls the assets of the trust account?

The individual who creates the trust (the grantor) names a person who will serve as trustee and will follow the trust’s terms after the grantor dies. While alive, the grantor usually may serve as a trustee and control the assets even though they belong to the trust.

Why is it called a “living” trust?

It is called a living trust because it is created during the grantor’s lifetime, and takes effect during the grantor’s lifetime. By contrast, a will does not take effect until after death.

What must the grantor do for the living trust to become effective for his/her assets?

For a living trust to take effect, title to the grantor’s assets must be transferred into the trust. For example, title to any bank accounts, stock certificates or real estate owned by the grantor must be transferred into the trust. The grantormusttake affirmative steps to transfer assets and fund the trust. Merely executing the living trust itself will not cause the trust to become funded.

What is the advantage of a living trust versus a will?

Perhaps the biggest advantage of a living trust is that it does not have to go through probate, as does a will.

Does my designated Trustee(s) or Beneficiary(s) have to be eligible for membership at InFirst FCU?

No, they do not have to be eligible for membership, however, if your Trustee and/or Beneficiaries are immediate family members (mother, father, son, daughter, grandmother, grandfather, step-siblings, step-children, step-parents, grandchildren, adopted children) they are eligible for membership at the credit union at any time.

Are there any tax advantages to creating a living trust?

There are no substantive income tax advantages in the use of a living trust. The grantor is treated as the owner of the trust for income tax purposes, and must report all trust income on his or her personal return under the “grantor trust” income tax rules.

Can I have both individual accounts and a Trust Account at InFirst FCU?

Yes, you can! You can keep share accounts out of the trust if you wish and hold them separately from the trust itself. You can even designate the trust as beneficiary on your individual accounts if you would like.

Example:John Doe has established the John Doe Living Trust at the credit union. However, Mr. Doe would like to keep a separate share account at the credit union that is joint with his college-age son so that he can provide financial assistance to the son when needed. He may do so without using funds in the trust account or relying on his

designated Trustee to transfer funds on his behalf.

Are the funds in a living trust federally insured?
Living trust accounts are insured as a form of an individual account. The beneficiary doesn’t have to be a family member but must be a natural person or charitable organization. The funds in such accounts are insured for the owner up to a total of the $250,000 for each such beneficiary, separately from any other individual accounts of the owner. If the beneficiary is not one of those listed, the funds in the account that are attributable to that beneficiary are treated as an individually owned account of the owner, aggregated with any other individual accounts of the owner, and insured to the $250,000. In the case of a revocable trust account, the person who holds the power of revocation is deemed to be the owner of the funds in the account.

What precautions should be taken when considering a living trust?
When planning for the disposition of your estate, avoid dealing with anyone but a trusted and well-referred professional in your community. Do not agree to contract for any legal service from someone selling door-to-door or over the phone. If you have already purchased a living trust on that basis, take the time to show it to an attorney.

What is a joint revocable trust?
A joint revocable trust account is a revocable trust account that is established by more than one owner and held for the benefit of others – some or all of whom are within the described qualifying degree of kinship.

How are joint revocable trusts insured?
The respective interests of each co-owner held for the benefit of each beneficiary will be separately insured up to the $250,000. The interest of each co-owner will be deemed equal unless otherwise stated in the share account records of the federally-insured credit union. Interests held for non-qualifying beneficiaries will be added to the individual accounts of the co-owners. Where a husband and a wife establish a revocable trust account naming themselves as the sole beneficiaries, the account will not be insured as a joint revocable trust account, but will instead be insured as an ordinary joint account.

If the grantor(s) dies before the beneficiary reaches legal age (usually 18), how are the assets in the trust handled?

Distributing Property to Children in Living Trusts

You can leave property to children through a living trust. Minor children in many states have the right to inherit the family residence. If you desire, you can keep the property in trust and designate an adult to manage the property on behalf of the child. This is called a children’s sub trust. The sub trust will end when the conditions you specify are satisfied, such as when your child turns 21 or graduates from college. If you want to exclude a child from your trust, you should state your intention explicitly. If it appears you unintentionally overlooked one of your children in the trust, a court may modify the trust for that child’s benefit.

Designating a Guardian

It is important to remember you cannot designate a guardian for your minor children through a living trust. You should do that through a traditional will.


Category: Personal Finance

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