Revocable Living Trust Account Issues
Introduction
As a result of intensive marketing efforts by attorneys and financial planners concerning the horrors of probate, credit unions are being confronted by their members' estate planning device: the revocable living trust.
A member's revocable living trust will affect how a credit union transacts business with respect to the trust's accounts and loans. Yet, beyond the simple procedural requirements attendant with the trust's accounts and loan transactions, a member's revocable living trust should not prove to be troublesome. Rather, it should be looked upon as an opportunity to increase the credit union's membership and offer more service to members. These materials will provide an overview of the basic considerations the credit union needs to address when dealing with its members' revocable living trusts' membership and account issues.
What is a trust?
Though the term "trust" is used to describe a variety of fiduciary relationships, a trust is a legal device (usually evidenced in writing) which enables a person (the grantor) to transfer property into the custody of another (the trustee) to use and manage for the benefit of a third party (the beneficiary).
The "grantor" (a.k.a., "donor," "settlor," "trustor") creates the trust by transferring property into a trust, which a "trustee" will manage and hold for the benefit of the "beneficiary." A trustee agrees to hold, invest, and manage the trust property, and then distribute the trust property to the beneficiary as directed by the trust agreement. The trust's business is therefore transacted by the trustee, who is granted powers over the property by the trust agreement.
The same person(s) may be named as grantor, trustee, and/or beneficiary, or there may be different or multiple people in all three roles. This is entirely dependent on how the grantor establishes the trust.
What is a revocable living trust?
A living trust (i.e., an inter vivos trust) is a trust which is created and becomes operative during the grantor's lifetime (the grantor is stating, through the trust, his/her intentions as to the conveyance of the property during his/her lifetime). Living trusts are often used to avoid probate, and thus are commonly referred to as being "will substitutes." A revocable living trust is a trust where the terms can be freely changed by the grantor at any time. The terms may be altered or terminated at the grantor's pleasure.
Typically, revocable living trusts are initially funded by the member(s) as grantors transferring all of their present assets (i.e., house, vehicles, accounts, investments) into the trust. The member-grantors, usually husband and wife, appoint themselves as trustees and designate their children as beneficiaries. The member-grantor's assets are held in trust and used by them as trustees during their lifetime and then, upon the last spouse's death, are passed on to the beneficiaries (usually children or other family members).
Once the trust is established, the member-trustees no longer act in their individual capacity with respect to the trust property, but rather as trustees on behalf of the trust.
The appealing aspect of revocable living trusts to credit union members, aside from probate avoidance, is the retained management and control over the trust property. As long as the member(s) is alive and competent, (s)he or they are free to change or revoke the trust at any time.
Credit union issues when dealing with revocable living trusts
When a member arrives at the credit union with his or her (or their) revocable living trust, (s)he {whether (s)he knows it or not} is seeking to have his or her trust utilize the credit union's services as a member of the credit union.
Once the credit union has determined that the trust qualifies for membership, the credit union needs to attend only to the procedural requirements found herein to facilitate the revocable living trust's account needs.
1. Membership issues
2. The revocable living trust as a member of the credit union
Before a living trust can utilize accounts, it must qualify for membership at the credit union.
1. Revocable living trust membership requirements for federally chartered credit unions
A federally chartered credit union must review its charter at Section 5 and its bylaws at Article XVIII, Section 2(b), to determine if organizations of such persons composed exclusively of persons within the credit union's field of membership are eligible for membership in the credit union.
If the credit union's charter and bylaws contain such language, and if all persons composing the revocable living trust (grantors, trustees, and beneficiaries) are members of the credit union or eligible for membership, (this is usually the case, as most times all are family members), the revocable living trust may become a member of the credit union in its own right.
2. Revocable living trust membership requirements for state-chartered credit unions
State-chartered credit unions are permitted to establish revocable living trusts as members pursuant to Section 451.2 of Article XI of the New York State Banking Law. The credit union should review its bylaws to determine if organizations of such persons composed exclusively of persons within the credit union's field of membership are eligible for membership in the credit union.
If the credit union's bylaws contain such language, and if all persons composing the revocable living trust (grantors, trustees, and beneficiaries) are members of the credit union or eligible for membership (this is usually the case, as most times all are family members), the revocable living trust may become a member of the credit union in its own right.
3. Nonmember joint account owner alternative
If the revocable living trust does not qualify for membership at the credit union, the member does have the alternative of opening a joint account with right of survivorship and placing the trust on the account as a joint owner. Upon the member's death, the funds held in the account vest automatically in the living trust.
4. Account issues
If the revocable living trust qualifies for membership, the trust, like any other member, may open accounts at the credit union.
Establishing accounts: account ownership
Since the trust is the member, the member-trustee fills out the membership and account documentation on behalf of the trust as a member.
The account should be established in the name of the trust, as follows:
"The Shrader Family Revocable Living Trust," with Steve Shrader and Linda Shrader, Trustees of the Shrader Family Living Trust."
All statements, agreements, and other necessary documentation must be completed in this manner as well.
Taxpayer identification numbers
The member-trustee should know whether to use his or her own social security number or obtain another taxpayer identification number from the Internal Revenue Service. If he or she does not know what number to use on the account, have him or her find out from the attorney who drafted the trust.
The credit union should only be concerned that the name of the living trust matches the number provided by the member-trustee for the account. The credit union should never advise the member-trustee which number to use. If the member-trustee does not have a number, the credit union should decline to open the account until an appropriate number is obtained.
Account type selection
If the member-trustee is unsure of which account-type to select, the credit union should give the member-trustee an account card, the card's instructions, and a copy of the credit union's account insurance/guarantee information, and have the member-trustee take these items to the attorney who drafted the trust, so the attorney can advise the member which account to select.
Under no circumstances should the credit union advise the member-trustee which account-type to select to meet his or her revocable living trust needs.
Transaction of account business by trustee(s)
The trustee must transact all the revocable living trust's business (i.e., deposits, withdrawals, closure of an account) in his or her representative capacity. All signatures on all agreements and authorizations must be made as trustee, not in the member's original individual capacity.
Depending on how the trust is established, both (or all) trustees may be required to sign all documents (i.e., "Steve Shrader, Co-Trustee" and "Linda Shrader, Co-Trustee") or any one of the trustees may be able to sign individually (i.e., "Steve Shrader, Trustee").
Be sure the trust document is CLEAR in this regard, and the credit union staff is aware of the signature requirements. The credit union could be held liable for damages if the trust's instructions are not followed properly.
Termination of account
The trust's account will typically be terminated by the trustee withdrawing all the funds from the account, or by the death of the grantor(s). This entitles the beneficiaries to the account proceeds.