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A trust is a property arrangement in which a trustee, such as a person or a bank trust department, holds title to, takes care of, and in most cases, manages property for the benefit of one or more third parties (beneficiaries). The creator of a trust is called the “trustor,” and is also known as the “settlor” or “grantor.” Trusts may be revocable or irrevocable. Revocable trusts can be changed or revoked at any time. For this reason, the government considers the specified assets to still be included in the grantor’s taxable estate. Therefore, you must pay income taxes on revenue generated by the trust and possibly estate taxes on those assets remaining after your death. An irrevocable trust, on the other hand, cannot be changed once it is set up. The assets placed into an irrevocable trust are permanently removed from the grantor’s estate and transferred to the trust. Income and capital gains on assets in the trust are paid by the trust. Upon a grantor’s death, the assets in the trust are not considered part of the estate and are therefore not subject to estate taxes. It should be noted that most revocable trusts become irrevocable at the death or disability of the grantor.
First State Bank offers professional investment management and unlike even the most astute investor, the bank never takes a vacation or gets sick. By creating a trust to fit your unique needs, you benefit not only from the bank’s experience, but also from the tax advantages, security and legal protection that a trust can provide.
The trustor doesn’t really “lose” control over the assets, since the trust is managed to achieve the specific purpose defined in the trust agreement.
When the trust agreement is signed, the settlor decides exactly how much discretion to give the trustee in managing the assets. While some people impose very strict limitations, many persons allow the trustee to use broad discretion. Overly restrictive limits on the trustee’s investment powers don’t take into account changing economic conditions, and might prevent the trustee from capitalizing on potentially profitable shifts in investment markets. The trust customer is always protected by state trust law and federal bank supervision. Many states, Illinois included, have the “prudent investor rule,” that allows the trustee, unless restricted by the trust agreement, to exercise sound discretion, and consider both the probable income and safety of the assets in making investment decisions.
Trust accounts vary from a few thousand dollars to millions of dollars. Generally, anyone whose property totals more than $100,000 should investigate the possibilities offered by trusts. Included in the calculation of property are the current value of a home or real estate, savings, a business interest, stocks, bonds, life insurance, securities, personal property, collections, and all other assets. Many people are quite surprised to learn what all their property is worth at today’s prices.
That’s right. For example, the bank’s personal agency services will provide investment advice and will execute and record investment transactions made under your instructions or at the bank’s discretion. The trust department’s services also include estate settlement and escrow accounts.
Mr. Jones was 43, a widower, and had three children, ages 11, 13 and 15. He wished to provide for their living expenses and college education, but knew they were too young to manage his portfolio of stocks. He created a testamentary trust (to take effect upon his death) that would manage his assets, pay the living expenses of the children, pay the college expenses of each child and then divide all remaining assets equally when the youngest child received a degree.
Mr. and Mrs. Smith were both 76, and had accumulated a valuable portfolio of stocks and real estate through years of careful investment. Now, about to retire to a warm climate, the Smiths wanted freedom from investment matters. He established a living trust to manage his investments and pay them a monthly income based on their needs. Upon his death, the trust would continue in operation to provide for his wife’s needs.
Mr. Livingston’s estate was valued at $800,000, but he learned that if he left it all to his wife outright, her estate would face almost $50,000 in taxes when she died. By establishing several trusts for his wife and children, he eliminated the eventual tax burden entirely.
Schedule an appointment with Nikki Mann, Trust Officer at First State Bank. She will be happy to discuss your situation in a confidential setting to assess your estate value and structure and determine if trust services may be advantageous to you, either now or in the future. It is also important to consult your attorney and accountant for a comprehensive financial picture.