There are many kinds of trusts for many different purposes. They all have one thing in common: they are a means to assuring your property will be handled, and ultimately passed on, to those beneficiaries of your choosing. Leaving property outright often fails to meet your objectives. Sometimes assets are dissipated by inexperienced beneficiaries; sometimes passing to “in-laws” you never cared about; and, sometimes results in the payment of unnecessary death and estate settlement cost when the beneficiary dies.
A trust is created by the transfer of property to a trustee that has the responsibility to manage the property under the terms of a trust document for the benefit of beneficiaries. How can you be sure the trustee will manage the trust property in the best interests of the beneficiaries? By picking a trustee you can trust to carry out your wishes.
A trust can provide financial protection for beneficiaries. A trustee can provide the investment knowledge to wisely and appropriately invest and manage the assets in the trust; counsel against “get rich ideas” proposed by unscrupulous strangers or naïve, but well meaning friends or relatives; and, guide and direct an inexperienced beneficiary on the handling of significant assets once the trust terminates.
Substantial savings in taxes can also be realized with well thought out trust arrangements. A properly prepared trust can contain assets that will avoid taxation in the surviving beneficiary’s estate, even though the beneficiary receives all of the income and access to the principal to maintain a comfortable lifestyle. Despite the changes to federal estate taxation that have freed thousand of estates from taxation, many thousands of others still need to be concerned about estate taxes. Congress has made several changes regarding federal estate tax laws that might affect your situation. Contact us to find out more details.
Trusts Under Will - Your will provides the terms and conditions of the trust. During your life, you continue to own and control the assets. You can change your will as your assets and family change. After your death, your trustee assumes the responsibility for the proper management of your property for your family's benefit.
The trustee assumes the "headaches" of making investments, filing tax returns, keeping books, collecting rent and contract payments, and all of the other details of managing property. The trustee can also help prevent a beneficiary from making an unwise investment. A beneficiary can deflect the request by a friend or relative for a "loan" or "can't miss" investment simply by referring the request to the trustee.
If the trust is for the surviving spouse or children, income tax benefits can be achieved by distributing income within the family unit where it will do the most good, but at the least income tax cost. For example, income could be distributed to a grandchild for college expense rather than to a parent or grandparent in higher income tax bracket.
Living Trusts - Typically, living trusts provide all of the benefits of a trust under will, as well as others. The basic difference is that a living trust is created and becomes operational during your lifetime. These trusts are generally revocable, which means that the terms of the trust can be changed at any time prior to death. Many times the creator of the trust is also the trustee and the beneficiary. At your death, the trust can continue for the benefit of others (just as a trust under will begin operation at that time), achieve the same tax benefits, and at the same time minimize the costs of settling your estate. Other advantages of a living trust include: you can "tryout" your trustee during your life if you appoint another as a trustee; living trusts are generally more confidential.
Irrevocable Insurance Trusts - This type of trust is used to provide liquidity at the time of death without having the insurance proceeds included in the taxable estate of the insured. Properly arranged, the gifts of cash by the insured to the trustee to pay the insurance premiums are treated as a part of a $12,000 per year per person tax-free gift. This results in both the gifts and the insurance proceeds being excluded from transfer taxes.
Second only to deciding you need a trust is deciding who should be the trustee. A trustee needs to have a complete knowledge of taxes, accounting, real estate, business administration and investments. A trustee should be financially responsible. A trustee must be impartial so that all of the beneficiaries are treated in accordance with the terms of the trust. Being a trustee is a full time job; therefore, a trustee needs to always be available. At Iowa State Bank, we feel we meet all of these standards. Our trust staff is experienced and trained in administering all types of trust. We are responsible, and impartial. It is our commitment to carry out the terms of each trust we administer.
Additional Services - For those who want to take advantage of our investment services without the formality of a trust arrangement many people use an agency account. This is a simple relationship where you hire us to manage your assets. A preprinted agreement is signed which spells out our duties and responsibilities. You deliver your securities to us and we manage them based on your guidelines. The agreement can be terminated and assets can be added or withdrawn at any time.
There are three basic arrangements available:
Custodial Account - We hold all assets, collect income and provide you with accounting on a regular basis. Bills can be paid and cash returned to you as you instruct. No investment advice or management is provided.
Investment Advisory - This service provides all of the services of a Custodial Account plus we will review your investments and make recommendations to you. You have the final say on investment decisions, but have the advantage of our recommendations.
Investment Management - This service provides all of the services of a Custodial Account plus active investment management of the assets in the account. You establish the investment guidelines and we take it from there.