Friday, January 21, 2011

How bank trusts work. Having assets should be a blessing

Editor's Note: I've written before about family conflict, wills, conservatorships and bank trusts when my 95-year-old mother began to lose control of her finances. This is the latest installment and focuses on bank trusts as a solution to the problem. Most people don't need bank management of their assets but some do: Trusts become an option when:
 - There are substantial assets typically worth a combined $500,000 and up. But trusts with far less value can be set up for others including children who might be on their own.
- If there are second, third and even fourth marriage situations with children and step-children.
- If the kids hate each other. If one of the kids is physically or morally incapable or is disabled.
- If there are a lot of assets and no ability to management them.
Here's my update story, below. - Julia

More than a year has passed since the process began to place my mother's assets in a bank-run trust. The court-ordered trust became final in July after two hearings and hours of legal work. Now seven months later friends ask me how it's going?
For the peace of mind it has brought my family, I'd say the monthly bank management fees to oversee my mom's investments, her checking and savings accounts, pay most bills and operate the farm have been worth it. With limited eye-sight resulting from a stroke and general incapacity from old age, my mother at then 95 was quickly losing control of her finances and her farm business. She could not remember key conversations, was indecisive to the point of distraction and (as her own attorney said) played my sister and me off against each other when it came to money matters.
Am I totally comfortable with everything the bank is doing? Not completely but as things have settled down, my comfort level has improved. Money issues no longer come up with mother. She continues to live in her home with my bi-polar sister who now must confront the bank... not my mother or me... when she has issues. This all came to a head when my sister called the police to report my mother's kidnapping when mom and I went to lunch without her.
A year later, trust management is keeping my mom in her house where she wants to be, is providing financial support and keeping a roof over my sister's head while preserving mom's core assets including a stock portfolio and a farm. In the past seven months, the bank has:
- Set up a household checking account for my mom and a separate account for my sister.
- Evaluated and realigned mom's stock portfolio.
- Signed a two-year management contract with the couple who operate my mom's farm.
- And generally reviewed how best to manage mother's assets.
Printed bank reports on all of this activity are mailed to me, to my mom and sister every month.
So far the bank is doing what it said it would do and charging the 1 percent to 1.5 percent it said it would charge. But even though she agreed to the trust before a Superior Court Judge, my mother (being the Depression Era person that she is) would prefer to not be paying the bank for any of these services, and every so often has mixed feelings. My short answer:
"Mom for the peace it's brought to the family, the trust has been good. Does money come up, any more? Is the stress level down? Are we able to focus on you and how you're feeling rather than the latest issue about your assets?" She will agree all that is true. This blog post is not intended to be a big authoritative analysis of bank trusts but is to provide feedback from my own unique experience on how the trust is working for us.
My mother's trust banker, Peter Toft, works for U.S. Bank in her hometown. He's been doing trust work for 35 years and has pretty much seen it all. Toft and I talked the other day in general terms about what bank trusts do.
Advice to families
His advice to families who might be considering setting up a bank-run trust goes like this. First, every trust is unique in terms of individuals and assets, so it is important to tailor a trust document to those specifics.
Toft cautioned against pulling formulaic documents off the Internet to use in setting up a trust.
"Do you pull your own teeth?," he asked. "It doesn't make sense to go to the Internet to find some wacky form to dispose of everything you've worked your lifetime for, just to save money on attorney's fees."
Who needs a trust? Trusts become important if:
- There are substantial assets typically worth a combined $500,000 and up. But trusts with far less value can be set up for others including children who might be orphaned or face other circumstances.
- If there are second, third and even fourth marriage situations with children and step-children involved.
- If the kids hate each other. If one of the kids is physically or morally incapable or is disabled.
- If there are a lot of assets and no ability to management them.
"In this case, a family may recognize that they have a problem and that they need help," Toft said. "Some families don't need a trust but instead just need a good up-to-date will and a durable power of attorney."
Families wishing to set up a trust should work with a knowledgeable attorney who draws up the documents. But before signing those documents, they should be reviewed with the proposed trustee so that the family, the attorney and trustee (in this case the bank) agree on what is intended.
Secondly, people need to be really careful about who they name as trustee.
"If you decide that Uncle Louie should be the trustee, be sure you know what you and Uncle Louie are getting into," Toft said. "The best agreement isn't worth very much if you don't have a competent trustee, someone who will put in the time and provide regular reports on how things are going."
That may be flattering to be asked, but it's a big job for a family member.
People, especially beneficiaries, may see a trust as taking away control. The grantor, however, has the power to amend or revoke the trust, or fire the trustee. "There are pluses to hiring a trustee who does the job for a living rather than turning to Uncle Louie," Toft said.
Banks and other financial institutions are legally bound to provide competent trust management. Policies and procedures are in place, reports must be prepared. Bank trust departments are audited by outside regulators. Uncle Louie, meanwhile, is not required to do anything.
"If the trustee is a jerk, you can call his boss," Toft said. "Professionally managed trusts are held to a higher standard than an individual. There's definitely recourse."
Professional trust managers have a duty to communicate, to keep an accounting, not to self deal and to be impartial, Toft said. That's why the bank sold my mother's U.S. Bank stock so there would be no conflict of interest. "Barring fraud or embezzlement, courts hold individuals as trustees to a much lower standard," he said. That is not to say that professional trust managers don't make mistakes. That's why they are insured, bonded, audited and reviewed.
Legal terminology
There's a lot of terminology around trusts. We actually started out proposing a conservatorship for my mother but because she and my father, who died 20 years ago, already set up a couple of trusts, one in my dad's name and another in hers, a conservatorship wouldn't work. So the new trust provides oversight to the prior trusts. Toft agrees that legal trust documents can be "incomprehensible" to the non-professional. So even if you assign yourself as trustee of your own trust, it's a good idea to ask a bank or your CPA to provide what's called a document review. Ask the simple question: "How does this look to you?" Their suggestions likely will be well worth it.
Typically, trust management fees range from 1 to 2 percent of assets under management. The greater the trust assets, the lower the fees. The grantor and beneficiaries are entitled to at least an annual accounting of the trust, most often quarterly or monthly. The bank can be an agent or co-trustee. It can also be a successor trustee or an alternative trustee.
As part of the estate planning process grantors should pay particular care of tangible assets and carefully list who gets what and how and when in terms of art work, furniture, cars, clothes and jewelry.
Toft said he has seen "train wrecks" where the kids are fighting, one party has carted off stuff and everyone is upset. "Making a plan vastly increases your odds of success," Toft said. "Having assets should be a blessing, not a curse."
Related articles at
My 95-year-old mother and conservatorships.
Money and Mental Illness: It's not a pretty picture.
For more:
Trust law history and definitions, click here.
Benefits of setting up a trust, click here.
Trust accounts, click here.
U.S. Bank Wealth Management and Trust accounts, click here.
Does a trust make sense?, click here.

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