There’s a common misconception that trusts are solely for affluent households. In truth, however, many people can benefit from integrating trusts into their estate plans. Their power is in their versatility — many types of trusts exist, each designed for a specific purpose. Understandably, many people still have questions about them.

To help you make a more informed decision regarding which type of trust might be useful to you, RBFCU Trust Services is here to provide answers to common questions about trusts and estate planning. We’re also introducing terminology that can help deepen your knowledge and understanding.

How does a trust fit into estate planning?

In the simplest terms, a trust is a legal document that can be effective both during your lifetime and after your death. It pulls together your most valuable assets (e.g., money, real estate, investments and collectibles) for safekeeping. When you’re no longer around to manage your trust, a successor trustee you’ve named will continue to do so in keeping with your wishes. This includes ensuring that your assets are distributed to your beneficiaries.

» Tip: A trust is one of several estate planning essentials, and it can help you maintain privacy around the transfer of your assets. Learn more.

What is the difference between a living will and a living trust?

These two very important estate planning essentials are quite different from each other but serve similar purposes.

A living will can help you manage your health care decisions in case you become incapacitated. It is a legal document that becomes effective if you become so ill or injured that you can’t make responsible health care decisions for yourself. It lets you approve or decline certain types of medical care in advance.

A living trust can help you manage your personal property and assets in case you become incapacitated. It is a revocable trust you create while you are living. You name yourself as trustee and someone else as a successor trustee who automatically steps in to continue managing your estate for you if you become incapacitated or in the event of your death.

What is the difference between a “trustor” and a “trustee”?

When you create and fund a trust, you are known as the trustor (or sometimes, the settlor or grantor). The trustor names people, known as beneficiaries, who will benefit from the trust. Beneficiaries are usually your family and loved ones but can be anyone you choose, even a charity.

Beneficiaries may receive income from the trust or may have access to the principal of the trust either during your lifetime or after you die.

The trustee is responsible for administering the trust, managing the assets, and distributing income and/or principal according to the terms of the trust. The trustee may be either an individual or company. For example, at RBFCU Trust Services, our company serves as a trustee for clients who seek to have professionals manage their trusts in alignment with their values.

What are a trustee’s duties with a trust?

The trustee serves as a fiduciary, someone who owes a special duty of loyalty to the trustor and beneficiaries.

By law, the trustee must also:

• Preserve, protect and invest the trust assets for the benefit of named beneficiaries
• Keep complete and accurate records
• Exercise reasonable care and skill when managing the trust
• Avoid mixing trust assets with any other assets, especially his or her own

A trustee lacking specialized knowledge can hire professionals such as attorneys, accountants, brokers, and bankers if it is wise to do so. However, the trustee can’t merely delegate responsibilities to someone else.

Although many of the trustee’s duties are established by state law, others are defined by the trust document. If you are the trust grantor, you can help determine these duties when you set up the trust.

Whom should I name as a trustee?

A trustee is an institution or person who is the legal owner of the property held by the trust and who is responsible for using the trust property for the benefit of the trust beneficiaries according to the terms of the trust document.

Because the trustee can be held personally liable if those duties are breached, many people opt to turn to professional trust administrators who offer continuity of support.

You may select one trustee or multiple trustees, depending on your needs. Whom you name as trustee will depend on the type of trust you establish and your individual needs and goals.

Generally, you want the trustee to be capable of administering the trust according to the terms of the trust document. In addition to the willingness to serve as the trustee, the person or institution selected may need to have investment experience and good record-keeping abilities. You may also want a trustee who relates well with the beneficiaries and is sensitive and flexible regarding their changing needs.

The takeaway

Trusts can be useful tools to advance your estate planning goals. Between our in-house staff and our network of attorneys, wealth managers and tax professionals, RBFCU Trust Services offers personalized support to help you protect your legacy. Best of all, we provide a no-cost, no-obligation initial consultation to RBFCU members and non-members.