What is a trust, and how does it work with a legacy plan? Where does a will fit in? These are all powerful documents, and it’s important to understand how they can work together to protect your interests and transfer assets to your loved ones and favorite charities in an elegant and tax-efficient way. 

We sat down recently with Katie Bang and Rita Shepard at Lake Elmo Bank. It’s an employee-owned community bank near Minnesota’s Twin Cities–and its team leads a rapidly growing trust department. They shared some thoughts about how trusts work–and things to think about before setting one up. Here’s a recap of our conversation:

How does a trust work? 

Some compare a trust to a shipping box. A trust is a legal entity that can be set up in advance, but can be funded at any time in the future–during the owner’s life or after they’re gone. So the “box” remains empty until it gets funded with assets and then dispersed (“sent”) to beneficiaries/recipients, all according to the parameters set up in the trust documents. 

A trust can be part of, or referenced in, a will or legacy plan, and it’s held by a foundation or trust company and managed by a trustee. A trustee can be a family member, friend, or professional, and here’s more about the trustee role and how it works. Choosing the right company or firm to administer a trust is just as important. 

What should families look for in a trust company?

“I always go back to the personal service because trusts are so unique and personal to the family,” says Bang. “Especially at the beginning of trust administration, we’re really getting to know the family and the beneficiaries of the trust. It’s good if families can directly call the lead on the account, and get to know the officers, in case questions come up. We’re doing everything right, from a regulatory standpoint! Sometimes there can be great peace of mind from selecting a community bank over another entity.”

Shepard agrees. “Low turnover and consistency are key,” she says. “Trusts are often set up to last decades, so we really get to know these families over the long haul. Sometimes, we’re cleaning out or selling homes, assets, and vehicles. It’s not uncommon to meet with families a lot.” 

There are different ways a trust company can support a family, Shepard explains.

• As co-trustees, they work jointly with a trustee or family member to manage a trust.
• As a secondary trustee, they can take over where an original family or friend trustee was serving: handling taxes, bills, or managing a home after the original person has passed away or can no longer serve.
• As a full, professional trustee from the get-go. In this case, a child or family will know the decedent’s goals and motivations, and consultation is important. “We can create a really nice, complementary relationship that ensures someone’s wishes are honored, but also that everything is tidy with the IRS rules, policies, etc.,” says Shepard.

Flexibility, service, and knowledge are important to find in a trust company. Administrators should understand the family’s needs and wishes and step in respectfully and seamlessly, even when things are complicated. 

What assets can be included in a trust?

• Cash accounts: checking, savings, money market, or CD
• Real estate
• Brokerage accounts
• Stocks and bonds
• Vehicles
• Corporate/partnership interests
• Collections: jewelry, firearms, coins, art. These often have a niche market and need to be appraised and sold. 

Assets can be transferred into a revocable living trust during life–helping to streamline the estate and make it more tax efficient. They can also be incorporated into a charitable trust, either during life or after someone’s death. A charitable trust is irrevocable once funded, so it’s important to consider your goals and family’s needs before deciding what type of trust–and what type of trust management–is right for you.

“More and more families are seeing the importance of legacy planning and understanding what a trust can do for their family. Even if they don’t have millions, it’s a nice way to provide for kids and still retain some control over their assets.” -Katie Bang, Lake Elmo Bank

At Apex, we talk with families about what life events, ages, or expenses should trigger a trust disbursement to their child(ren) or heirs. Bang often suggests families also consider adding a co-trustee to help with the day-to-day management of trust funds.

“In a community bank like ours, that can create a nice relationship. We meet with prospective families all the time, and often they’re thinking they’ll just name a child or friend as the sole trustee,” Bang explains. “After they learn about what that actually entails, they change their plans! In a co-trustee situation, an heir or other representative can remain helpful and in-control, without the burden of the entire fiduciary responsibility.” 

The team at Lake Elmo Bank, or Apex, can also enlist an attorney to help make a full legacy or estate plan if you don’t have one yet. Before choosing an attorney, we suggest you seek out local legal counsel that comes recommended by friends and family. Ask questions and shop around to be sure you’re getting the best price and a good fit for what you need. This is a big decision! Making sure things are done right, and that a trust will actually act the way you intend, is worth any legal fees you will pay.  

What should families keep in mind when it comes to estate planning?

“We’re not involved in the planning as much, but we do get to see the end product that families have come up with. We’re working on trusts that were established 20 or more years ago!” Bang says. “And COVID highlighted our business. I think that might be a dark thing to say, but people lost loved ones who didn’t have plans in place. And in general, our population is aging. Estate planning attorneys are so busy these days. But we’re happy to have those preliminary, fact-finding meetings with families to help them think through all the details before they sign anything. And there’s no fee to name us in a document; we don’t start charging an administrative fee until we’re actually hands-on working with the trust.” 

“Trusts are becoming increasingly popular because of their flexibility and privacy,” Shepard adds. “It’s so important to think through the details. There are great professionals and resources out there! Seek them out.”

A legacy consultant–like at Apex–can help you think through your legacy plan, start-to-finish, incorporating a revocable living trust and/or charitable trust, depending on your goals. And after you have a trust set up, it’s important to fund it correctly. If an asset is meant to be stored in trust, but isn’t retitled correctly, it can wind up in probate–which is one thing you’re trying to avoid by setting up the trust in the first place! Here we explain how to fund a trust, asset by asset.