Ever wanted to create a trust fund but not sure where to start? Well, we have your back! We’ll break down the different decisions you’ll need to make when creating a trust agreement and what you should bring to Summit when it’s time to open a trust account. Get ready to give your family some extra security as you set them up for the future.
What Is a Trust?
We’re not talking about the bonds between best friends! These kinds of trusts are financial instruments used in estate planning to hold property, stocks or other kinds of assets for another person. Creating a trust is a way to set terms for the way your assets are gathered and distributed during your lifetime or beyond.
There are two stages to establishing a trust: creating the trust agreement and opening the trust account. The trust agreement is a legal document that lays out the terms of the trust – you’ll need to have this drawn up by an attorney before you’re able to open a trust account. When you’re ready to open your trust account, Summit can help you open new accounts or modify existing ones to fit the terms of your trust.
Types of Trust Funds
The first thing you will decide when creating a trust is which type you want to make. There are two primary types to choose from: living trusts and irrevocable trusts.
LIVING TRUSTS: This term generally refers to a trust that is changeable during the lifetime of the settlor (we’ll get to that later). These are also known as revocable trusts, inter vivos trusts and most commonly, family trusts. Think of them as a large, accruing savings account for your family that can be altered, changed, etc. during the lifetime of the person who opened it.
IRREVOCABLE TRUSTS: These differ from a living trust in that once the trust is opened, the settlor cannot alter, revoke or close it. The most common irrevocable trusts are found in wills and are also sometimes called testamentary trusts.
How a Trust Fund Works + People Involved
Once you’ve decided what kind of trust you’d like to establish, the next step is to have a trust agreement drawn up by an attorney. A trust fund works by establishing a group of assets as a separate legal entity from the individual who created the trust. This makes it possible to transfer property, stocks, and other assets more easily between people over periods of time. Much like a corporation isn’t owned by one single person, a trust fund is created, managed, and ultimately received by multiple people.
So, who are the key players involved in a trust fund? These key people include:
SETTLOR: The person who establishes a trust – you – by giving real estate or personal property “in trust” to a trustee for the benefit of a beneficiary. They can also be referred to as the grantor or trustor.
TRUSTEE: The trustee is the person who will manage the trust assets and is the only person who can transact business on a trust. This might be the same person as the settlor, or a different family member or close friend. Think of it as the executor of an estate, so to speak.
SUCCESSOR TRUSTEE: The successor trustee is the person or (occasionally) institution who takes over the management of the trust assets after the original trustee has passed away or becomes unable to manage the account.
BENEFICIARY: The beneficiary is the person who will receive the trust’s assets.
Pay Out Options
The other important decision you’ll make when creating the trust agreement is how you would like the trust to eventually be paid out to the beneficiary. When it comes to payout, there are a few different options:
ALL AT ONCE: The simplest way for the beneficiary to receive a trust is to get all of the assets at once. The settlor can also decide when they would like the beneficiary to come into the trust by tying it to a particular age or life milestone, such as graduating college.
SEVERAL LARGE PAYOUTS: Another way a beneficiary can receive trust assets is in a few large payouts across a span of time. For example, a beneficiary may receive 25% of the trust at 20, 25% of the trust at 30, and so on.
MANY SMALL PAYOUTS: As a protective measure, some settlors may decide to dole out the trust to the beneficiary in a series of small payments over a long span of time, such as small monthly payments.
What to Bring to Summit When Opening Your Trust Fund
Now that the terms of the trust agreement are written up, you can open your trust account with Summit Credit Union! Here’s what you’ll need to bring to Summit:
- Title page
- Signature page(s) and pages naming the trustee and successor trustee(s)
- Your trustee(s)
- Identification and social security numbers of each trustee
- Trust certification (only if the trustee isn’t the initial trustee and the trust is more than 6 months old)
So, there you have it, trust-worthy members! Opening a trust fund is a great way to provide for your loved ones for the long term. For more information, visit this breakdown of investment options. Until then, we’ll leave you with some FAQs around the trust process, but feel free to reach out at any time if you have questions!
FREQUENTLY ASKED QUESTIONS:
Q: Can my existing account be changed over to my trust?
A: In some cases, we can do that. We would need to review the account to determine if that’s possible. If there are loans or IRAs under the account, we would not be able to retitle the account.
Q: Do all trustees need to be present when establishing the account or retitling an existing account?
A: Yes, all trustees should be present to sign the forms that are needed to open the account or to change the titling of an existing account.
Q: Can a power of attorney be added to the trust account?
A: No, a power of attorney does not have a fiduciary responsibility to abide by the trust instrument, so we don’t allow them on trust accounts.
Q: Can I open a trust through mail?
A: Please contact us for instructions.
