Protective Trusts

 
Philip Fish, CFP<sup>®</sup> and Estate Planning Specialist with Sandy Spring Trust

Join Philip Fish, CFP® and Estate Planning Specialist with Sandy Spring Trust, as he shares his 30 plus years of experience on Estate and Financial Planning Issues.

Phil discusses trusts established after the passing of a client to protect a loved one. How are these trusts established? When are these trusts appropriate? Who should be selected as Trustee to manage these trusts? Phil will review the process from start to finish: The creation of the documents, the titling of assets, the funding of the trust and the ongoing management of the trust designed to protect a loved one.

Reference Materials Seminars

Transcript

  • Question

    Structured Trusts

    Answer

    - Hello, everyone. And thank you so much for joining Sandy Spring Bank's Real Life Matters webinar series. My name is Phil Fish. I'm a certified financial planner and an estate planning specialist with Sandy Spring Trust. For the past 20 years I've been a problem solver, trying to help clients navigate through life stages. So thank you for joining us today. You're joining us in one of two ways. Some of you signed up for the live program and welcome, happy Tuesday afternoon to you. And from your point of view, you seem to be the only person on the call. We do that for privacy reasons. So your video is blocked and your microphone is muted. So you don't have to worry about background noises. And many of you are joining us from the recordings on that are placed on sandyspringbank.com website, so thank you for joining us through that medium. And I hope you enjoy today's program. We're gonna be talking today about financial and estate planning, but with a focus on protected trusts. Trusts that are designed to protect a family member. So we have different topics on the website. You can go and hear me talk about revocable trusts, wills, investments, and other topics. These are community programs. So we hope to share the information with individuals, family, friends, neighbors, both locally and around the country. You do not need to bank with us to view these programs. So thank you. Hopefully you obtained an outline that is available on the website and may have been sent to you. But if not, don't worry, I will guide you through today's program. I'm gonna cover kind of 10 topics, all focused around the trust established to protect a family member. So on certain areas, like investments, I may not spend as much time, but hopefully you'll find today's information valuable. We don't take questions during these programs for a couple of reasons. One, we have a lot of information to cover today and I find that if we start taking questions, it doesn't give us enough time to cover the material. The other issue is the questions received, since I don't know anything about your background and your family, the answer I would have to give would be very generic and vague. So this is a one-way conversation to begin the process. And at the end of today's program, on the screen you will see my contact information. You can reach out to me by phone or email, or just call Sandy Spring Bank and ask to be contacted with Mr. Fish, who works with the trust division. I'm speaking to you today from our boardroom, located in the main office in Olney. Behind me, normally, during normal times, this room is filled with Dan Schrider, our president, and Phil Mantua, our chief financial officer, and members of our board of directors and senior management, as they talk about the bank's past, and our present, and our future. Those meetings are being held virtually as we still work our way through the pandemic. I hope you are safe, and I hope your family and loved ones are safe during this difficult time. If you bank with us, thank you. Sandy Spring Bank is the largest local community-based bank in the greater Washington region, founded back in 1868, in the small village of Sandy Spring, a few miles from where I'm standing. And after the Civil War, we were one of the first banks to accept deposits from everyone and anyone. The bank did not have restrictions on who it did business with, and many banks at that time, after the Civil War did have restrictions on who they would open an account for. We did not. And that's one of the little pieces of history of this bank that makes me very proud to have been here for the past 20 years. My role today is to try and raise awareness to get you thinking about issues. And if you have a family member that you're hoping to keep safe, I'm very sorry for the challenges you face. And we're gonna talk today about some difficult topics, dealing with family members who might have an incapacity, an illness, bipolar, addiction, might be an individual with special needs, but they are someone that you love and you want to protect. And there are ways to establish, through your estate and financial plan, mechanisms to keep them safe when you're not here. And that's what we're gonna focus today on. So we're actually gonna start, if you do have the outline, on item 10, which is the creation of a protective trust. But before I do that, there's a little bit of housekeeping I need to take care of. So if you'll give me a couple of minutes, there's a little disclaimer that I do need to read for you. So please bear with me. The material today is provided solely for educational purposes by Sandy Spring Trust, a division of Sandy Spring Bank and its not intended to constitute tax, legal, or accounting advice, or a recommendation for any investment strategy or transaction. You should always consult with your own tax, legal, accounting, or financial advisors, regarding your specific situation and needs. Our staff will always work closely with your advisors to coordinate your overall plan. Sandy Spring Trust and the Sandy Spring Bank logo are registered trademarks of Sandy Spring Bank and all rights are reserved. So thank you for that housekeeping. Now let's get into our work today. Please relax, hopefully you have a pad of paper and a pen, jot down questions. And at the end if you'd like to turn this one-way conversation into a two-way conversation, just reach out to me and schedule a time and we'll chat for an hour or so. And I'll do my best to answer your questions. I'm a salaried officer of the bank. I've been an officer of the bank for 20 years. I've been a certified financial planner for 20 years and I was a former trust officer. So I managed a lot of the types of trusts we're gonna be talking about today. And I've been in the industry over 30 years. I don't know all of the answers, but I can certainly the answer many of them. And there is no cost nor obligation to reach out to me and to schedule a time to talk. So again, thank you for joining with us and let's get down to work. Protective trust. When individual passes away, they will have legal documents. They might have a revocable living trust or a will, or they might have no legal documents, but in some form, their assets will pass on to family members and loved ones. For some families, they just wish to split the assets among one, two, three, four children, or among brothers, sisters, nephews, nieces, friends, or among charities, and the estate is a simple distribution of their assets. That's not what we're gonna be talking about today. We're gonna talk about taking a portion of those assets in the estate settlement and placing them into some form of trust, designed to protect an individual. Why would we have that kind of trust? Maybe the beneficiary is very young. Maybe you're planning to leave money to a grandchild or a child, if you're a younger parent, and they're not of age. If they're a 6 year old or a 10 year old, and you just can't leave a lump sum of money. Many of these trusts that you create may never actually go into effect. So a trust designed to take care of a young individual until they reach a certain age, let's say the trust is designed to be in place until the child reaches 25 or 30 or 35. Well, our hope is that trust will never go into effect. That the parent will live into long into their life, and by the time they pass away, that child is now 35, 40, or 50 years old. So then that trust is what we call contingent trust. It's in there just in case something happens. But there are other types of trusts that are gonna be in place permanently. And those trusts might be for an individual with special needs, a physical or mental incapacity, who cannot handle funds, who also may be receiving benefits, because they have an illness and because they don't have any assets. And so they may be receiving federal or state benefits and support and an inheritance might disqualify them for that. So then we would want to establish a trust that is going to keep the money separated. Maybe individual has an addiction, alcohol, drugs, gambling, maybe they have a mental health issue, bipolar disorder, maybe they just struggle with finances. Maybe they're in a marriage where a client is very concerned about a potential divorce and they wanna protect the assets. Maybe they're just easily influenced by others and the concern is that the money will be spent quickly. No matter what the reason for the protective trust, what I wanna focus on today is the importance of a proactive approach. Thinking ahead, trying to create a plan that has a good chance of success. And hopefully today's conversation with you will be the beginning of a longer conversation. I work for Sandy Spring Trust. We do three primary things. We are a trust division that manages assets. We get hired a lot to professionally manage assets under federal fiduciary standards. And we'll talk about what that means later today. We are a corporate trustee, so we can be named as a trustee within a trust. We can be named as a personal representative to settle an estate. We can also be positioned as a backup trustee. So a family member may be named, but the family may want a backup, in case that individual could not serve. And we're also position to provide support. What you're gonna learn today is the role of being a trustee of any trust, but especially these types of trusts is a huge burden. It's a lot of work. And Sandy Spring Trust can and does provide support and help to individuals who are named in this challenging role. So whatever the reason is for having the trust, we're gonna go back up to the beginning of the outline, and item one is having the right legal documents. Because the trust to protect the individual is gonna be established with your estate planning documents, your revocable living trust, if you have one, your will. And within those documents there might be a provision that says, "Upon my death these assets are gonna be "set aside into this trust." Sometimes that trust is embedded inside the will. So it is part of the will in the back pages. Sometimes the revocable living trust will continue on as an irrevocable trust after the death of the client. Sometimes there is a standalone trust that is just there, because the client may wanna place money into the trust while they're alive, and then add additional funds later when they pass away. We have lawyers on staff at Sandy Spring Trust, but they can never be your lawyer. We're here to help guide, to attend meetings with your attorney if you're a member of our trust group. But we're gonna work with your estate planning attorney or we can give you information on local attorneys that we've worked with who can help. Please, with trusts like this, work with an estate planning attorney who's familiar with the state's law where you reside, and has knowledge and expertise in these areas. These are complicated legal documents. And if they're written well, they can provide the protection you look for. If they're written poorly, they can cause all kinds of headaches and problems and your loved one may not receive the protection that you're to provide to them. So having the right legal documents is very important. And in other sessions, other discussions that you can find at sandyspringbank.com I talk in a little more detail about revocable trusts and wills. And so feel free to go to those sections if you need a little more detail, or you can just have a conversation with me after today. So once you establish your legal documents, within those legal documents will be the trust that you're establishing. And next we have to establish who's going to be named as your decision-maker. While you're alive, many times, you are the person taking care of this loved one. They might be a minor child. They might be an individual with health issues, and you're the caregiver, you're watching over them. The difficult thing is planning for a time when you will not be here. And that's what these trusts are designed to do, to be one piece in the puzzle of how do we make sure this individual stays safe and is protected? There has to be decision-makers name, trustees. Within a trust there's the trust document, there are assets that are placed into the trust, there's a beneficiary who's gonna receive the benefits of that trust, and then there are the trustees, who are the people responsible for managing the trust for the benefit of the stated beneficiary. Sometimes that's Sandy Spring Trust, sometimes it's a family member, a friend. The selection of the decision-makers is so important. And it's something that I spend a good part of my time talking to clients about. There's no right or wrong, but we need to think carefully about who we're gonna name. And we also have to recognize how much work is involved in this role. Once you have your legal documents and you've selected your decision-makers and you need to think also with these protective trusts, these might last for the lifetime of the beneficiary. So they could last, in theory, 40, 50, 60 years. So we have to think of continuity. We can't just name somebody, one person, and not have a plan. What happens if that person is no longer able to serve? So we need to think long-term, which is why many times Sandy Spring Trust is considered as an option, because we provide continuity. We will be here to take care of the client's needs into the future. We were founded in 1868 and we've stood by our clients' side for 152 years, and our plan is to continue to stand by our client's side for many years to come. So once you select your decision-makers, the next thing is to establish a line of communication with them. You learn nothing from today's discussion, realize how important this is. You need to speak to the people you've named in these important roles, especially with protective trust. If you're taking care of a loved one with health issues, the person who's gonna be managing the trust to hold the assets to take care of that loved one needs to have a high level of communication and knowledge. Now, while you're alive and healthy, you need to start engaging in conversations, sharing information with them, having conversations with them, whether it's with the trust officer that's assigned at Sandy Spring Trust, or a family member, or some combination thereof. They need to know their role. They need to know what you're asking of them. And they'll need to have a support system, which we'll talk about in a little bit. So once you get your legal documents in place and you have the trust designed to protect your loved one in place, and you've selected your decision-makers, the trustees, the postal representatives, the agents within the powers of attorney, then we have to think about titling of assets. With any estate plan, the titling of your accounts is critical. Individual accounts, joint accounts, trust assets, beneficiary designations. How your accounts are titled today and how they work with your estate plan, is so important. And it's such a common fault with plans when we meet with clients. They might have a very strong estate plan, but the way their accounts are titled are causing a disruption. They may have good solid financial plan, but they may be lacking a strong estate plan to take care of them when their health fails or when they pass away. So financial and estate planning is a coordinated effort. Both sides of the fence have to work in harmony with each other. So for example, if my father was establishing a trust for me and just for an example, let's say that I had a gambling addiction. I do not. And I in no way mean to make light of any addiction. But let's say that I did have a gambling addiction and my father knew of this. And he knew that if he left me a large sum of money when he died, there's a very good chance that I would gamble it and lose it very quickly. So he wants to establish a trust for my benefit. And he goes to see the lawyer and he goes and establishes the legal documents and he names a bank or a family member is the trustee of my trust. Obviously, I could not be the trustee of my own trust, because then I would have access to the funds and I could pull the funds out and go and gamble. So it has to be somebody other than me in order to provide that layer of protection that we're trying to create. But let's say my father had a large retirement account. An IRA or a 401k plan. And he just listed Phil Fish as the beneficiary on that account. Now that's all it said. Beneficiary, Phil Fish. Well, when he passes away then, I'm gonna receive those funds directly. They're not gonna be placed into the trust that he created, because the beneficiary designation overrides any legal documents he may have in place. So we have to be very careful with beneficiary designations, with account tiling, joint ownership, trusts. And when we are retained by clients to work with them, we work closely with your attorney. We take a look at your financial affairs and we make sure that your account titling compliments your estate plan, so that everything works harmony, not in conflict. Once we have the plan in place, we have to manage these assets. We're hired many times as an investment manager. We're under the federal fiduciary standards. It means that we manage assets under the strictest guidelines. All of our staff are salaried. We have portfolio managers who are not commission. They're not brokers, they're salaried, professional, portfolio managers hired for clients. They're employees of the bank and their role is to professionally manage these assets for the benefit of the client while they're alive. And then when the assets flow into the trust, to manage those trust assets either on behalf of the bank, if we're the trustee, or on behalf of the family member, if a family member or friend is named as a trustee. And we are many times hired by trustees of these types of trusts, who come to us and say, "My father established a trust for my sister. "I'm the trustee. "I need help managing these funds." And we are a wonderful fit, because we're very familiar with what it means to manage assets for the benefit of somebody else. The rules are different. If I take my own money, I can invest it any way that I want. Well, that's not really true, because I've been married for 26 years, so I would need to have conversations with my wife, Lisa. But in theory, could invest in some very aggressive strategies. I could take a lot of risks and the only person I would hurt if it went badly was myself. But if I'm acting as a trustee for my sister's trust and I take those same types of risks, and I act outside of fiduciary norms, I act with a lack of prudency. I could help be held legally liable for my actions. I am legally responsible for these assets when serving as a trustee. So if any of you on the call today are serving as a trustee, realize that you need to make sure you're managing assets in a way that meets fiduciary standards. And if you're unsure what that means, give us a call and we can have a conversation with you. So these assets need to be managed prudently. And many times they have to be managed longterm. Many of these trusts are established for an individual who may live for 20, 30, 40, 50, 60 years. So they have to be managed longterm, they have to grow and combat the effects of inflation and the increase in cost of everything, the decline of purchasing power over time. So they have to be managed prudently through different times. Through good times in the stock market, low interest rates, high interest rates, inflation, depression. And that's something that we do very well at Sandy Spring Trust is manage assets prudently. So once you have your trust established, and you've selected your decision-makers, and you prepared them for the role, and you've titled your assets properly, and you've managed them prudently, and I know this is a lot. And for those of you with a stronger background in finance and estate planning, you may view this information as very basic and broad, and it is. But for some of you who are new to this world, it might just as easily be overwhelming. The terminology, trust, trustees, personal representative, wills, it's like a foreign language. Just bear with us and know that you're not on your own. Know that Sandy Spring Bank and the staff that works here will help if you ask us to. And we'll do our best to answer your questions. And even if we can't help you directly, maybe we help answer a few questions and point you in the right direction. So if you have questions, feel free to give me a call. And this is what I do. I'm a former trust officer, but I now am basically a problem solver. I speak publicly and I handle calls and inquiries and I do my best to answer questions using my 30 years of experience, and we can help. Maybe not directly, but we can certainly maybe point you in the right direction. So once we have our estate plan, or decision-makers, we've prepared them, we've had conversations with them, we've titled assets properly, we've checked the beneficiary designations and the way the accounts are titled, we're managing the assets prudently, then we move into the next stages of what happens when the parent of this individual we're trying to protect go through life stages? One thing you need to realize is whoever you're thinking of naming in this role is going to need help. If you're naming a son to take care of a sister, or a sister to take care of a son, or a daughter to take care of a son, you need to realize that they're going to need help. I would need help, if I would name as a trustee of a family members trust. I'm not a lawyer. I'm knowledgeable, but I'm not an attorney. So I would need legal guidance. I'm not an accountant. The trustee is gonna have to handle the tax work of the trust. And these types of trusts have their own tax ID number. It's like a social security number, but it's designed for trust and they have to file annual tax returns and they're complicated and confusing, not something you do with TurboTax. It's something where you're going to need some good advice and guidance. So if I were a trustee, I would need tax advice. I would need investment advice, even though I've been a certified financial planner for 20 years, I do not manage assets for our clients here at Sandy Spring Trust. We have professional portfolio managers who have a much higher level of skill than I do, much more knowledge in the investment world than I do. They're the ones managing our client's assets. So if I were a trustee, I would need help managing the assets. I would need help on the medical side, because as we look at transition, we're talking about a protective trust for a loved one. But what if the client, what if the parent, or parents, have a health issue? Now we have two issues at the same time. We have an individual who might have be an individual with special needs, they might have an addiction, they might have mental health issues. They need to be taken care of. The parent was doing that, but now the parent is facing their own health issues, their own period of incapacity. And whoever's named is gonna have to do both assignments. Take care of the parent, but also take care of the individual that we're trying to protect. And that can be a very challenging time period. We need to make sure the documents are set up properly for incapacity, that allow the individual named to not only take care of the client, but also release funds from the client's personal holdings to take care of the individual that we're trying to protect, because the trust for them may not be funded yet. The trust to protect them may only be funded upon death. When the client passes away, we deal with such a difficult time for the family. The assets have to be dispersed. There might be some assets flowing to an individual who needs protection and some assets may be flowing to family members who don't need any protection. We need to think carefully about which type of assets we're sending in which direction. Some assets are better suited to be placed inside of a protective trust. Some assets like real estate or retirement accounts may be more challenging. And that's when we're gonna work closely with the client's estate planning attorney and really think about, "Okay, the client has these assets "real estate, investment accounts, retirement accounts. "They have these set of beneficiaries. "One or more may need some form of trust "that requires a level of protection." "Which assets do we place into which bucket? "What makes the most sense from a logistical standpoint? "From a tax standpoint? "How is the trustee gonna manage these assets? "Are they suitable assets to be managed "for the needs of that beneficiary longterm?" Yes, it's complicated, but it's important work, because if we can think through some of these things, we might be able to create a plan that is a lot more efficient and has a better chance of success at the end of the day. So when the client passes away, we're faced with a number of issues. We deal with gathering of assets, selling of real estate, dealing with personal items. Where is the beneficiary living? If the individual that we're trying to protect is living in the home with the parents, is that home suitable for them to stay there? Many times it's not. And once this trust is established and we've thought through where is the individual gonna stay? What are their needs? Then we have to start working on a comprehensive plan to take care of that individual. Sandy Spring Trust handles the financial side. We can serve as trustee. We can help an individual serve as trustee. We can manage the trust assets. We can pay bills. We are not the medical side. We're not the social care management side. So on many of these trusts there needs to be a medical, social care management piece. And that's better designed in advance, working with the clients while they're alive and healthy. Looking ahead to say, "Okay, John is the individual "we're trying to protect. "What will his needs be? "How will his will change when his parents pass away? "Where will he live? "How will bills be paid? "What care will he need? "How do we make sure he stays safe? "How do we maximize benefits that he's eligible to receive? "How do we make sure we don't make him disqualified "for those benefits?" Protective trusts are complicated, they're challenging. But if set up properly, they can provide a wonderful safety net for this individual. They can make sure that they have a place to stay, that their bills are paid, that they have insurance that's paid for and stays in force, and that they have a support system in place, and that the money is protected. So if tries to influence them, there's a safeguard in place, kind of a wall, and the money is protected, because the individual does not own those assets and they do not control those assets. A trustee does. And that trustee can protect the assets and release the funds as necessary. We've covered a lot today. We've talked about financial issues, managing assets. We've talked about having the right legal documents in place. Sometimes these trusts are established inside of a will, where the will will state, "Upon my death, "set aside these funds for the benefit of John. "And here are the terms of the trust "that I'm establishing through my will." Sometimes there's a revokable trust that will continue on. "Upon my death, take these assets "inside of the revokable trust and have them continue on "in an irrevocable trust for the benefit of John. "And here are the trustees "and here are the terms of the trust." I know it's overwhelming. I know it makes your head spin, but it's like anything else. If my car breaks down, I take it to my trusted local mechanic and I go, "My car doesn't work. "Please fix it." If my air conditioning breaks, or my electrical work, or my plumbing, I call experts who have the knowledge and the skills to know how to fix it. This is what we do at Sandy Spring Trust. We've been doing it for over 30 years and we've built a very strong reputation within the community for taking care of clients through various stages of their lives. If we can help you in any way, please let us know. At the end of today's program you'll see my contact information. You can give me a phone call or an email and we'll schedule a two-way video conference or a two-way phone conversation. And there's no cost. There's no obligation for us to talk. And I'll do my best to answer your questions honestly and see if we can help, either indirectly, by giving you a few ideas, or maybe directly where you talk about the bank being engaged to really help the family move forward and protect the loved one that you're trying to keep safe. I hope you're doing okay during these difficult times. And if you bank with us, thank you for being a part of Sandy Spring Bank. If you can help in any way, let us know be safe, and have a wonderful day.

  • Disclosure

    This material is provided solely for educational purposes by Sandy Spring Trust, a division of Sandy Spring Bank, and is not intended to constitute tax, legal or accounting advice, or a recommendation for any investment strategy or transaction. You should consult your own tax, legal, accounting or financial advisors regarding your specific situation and needs. Our staff will work closely with your advisors to coordinate your overall plan. 

    Sandy Spring Trust does not endorse or recommend the services of any person or entity not affiliated with Sandy Spring Bank. 

    Wealth and Insurance products are not FDIC insured, not guaranteed, and may lose value.

    Sandy Spring Trust and the SSB logo are registered trademarks of Sandy Spring Bank. ©2021 Sandy Spring Bank. All rights reserved.