Money IQ Trust Departments—What Else Can They Do?
Trust Department—what’s in a name? The word “trust” is a noun, an adjective and a verb.
Common understandings of the word “trust” are: (1) as a noun: the “reliance on the integrity, strength, ability, surety, etc., of a person or thing; confidence;” and (2) as a verb: “to rely upon or place confidence in someone or something.” trust. (n.d.) Dictionary.com. Dictionary.com Unabridged. Random House, Inc. http://dictionary.refernce.com/browse/trust (accessed: April 24, 2013).
In the legal world, the most common usage of “trust” is in reference to a recognized entity in which assets may be held for the benefit of specified individuals or organizations—the beneficiaries of the trust.
Given all of the above, it is common for people to assume that a trust department only deals with trusts. This article, however, focuses on the agency services that a trust department can provide while the customer is alive. The best vehicle for a person to name a financial institution as agent is through a power of attorney.
When a financial institution is named to act as the agent it is being asked to act on behalf of an individual known as the principal. As an agent, a trust department performs numerous duties on behalf of the principal, which may include, but are not limited to: (1) paying bills such as utilities, property taxes, insurance (health, homeowner’s and vehicle), medical bills, credit card statements, subscription renewals, rent, mortgage and any other approved invoices; (2) coordination and filing of annual tax returns; (3) coordination of home repairs/contractor work, including lawn and yard care; (4) communication with investment companies regarding any and all necessary matters and monitoring the investment accounts through the statements; (5) communication regarding retirement benefits and monitoring payment of the benefits; (6) processing payment for charitable contributions; (7) sale of assets, including real estate; and (8) coordination and payment for caregiving services.
For example, John is an elderly widower. None of his children live locally and they are busy with their own families and careers. While he is slowing down physically, John still has his mental faculties but he is tired of dealing with paperwork and automated phone menus. He wants assistance in keeping his affairs in order and help in keeping him from becoming the victim of unscrupulous persons.
John is a long-time customer of financial institution “X” and asks if there is any way that X can help him with his financial and personal matters. X does have a trust department and they provide such services through an agency relationship. John names X as agent in a power of attorney and signs an agency agreement giving X immediate authority to step into John’s shoes and help him with as much or as little as he determines. The relationship starts off with X helping review and pay billing invoices for John that he does not already have set up on automatic payment. John maintains all authority and X must account to him which expenses are paid on his behalf so he, or anyone else, can easily track money used to pay his bills.
This is made even easier due to the fact the trust department is able to move money from John’s checking account at X so he can see this in his bank statements as well as in the accounting statements he receives from the trust department.
As more time passes, and John’s confidence in the trust department grows, John turns over more responsibilities to X such as coordinating tax documents with his accountant, receiving his investment statements, making sure he is taking his annual required minimum distributions from his IRA, paying his property taxes and insurance premiums.
Nevertheless, X always consults him regarding any matters for which John should still make the decisions. If John does become mentally incapacitated, X will continue to provide the same agency services, which will more than likely expand in order to continue protecting John’s best interests and, ultimately, those of his heirs.
In the event of his mental incapacity, X usually begins reporting to his children, or other heirs, and will work with them as John’s estate planning documents dictate. John has also named X to act as personal representative of his estate upon his death. Given the existing agency relationship and the information X now has on file, this will help speed up the process of administering John’s estate as X will know who to notify of John’s death and what assets he owns that will be distributed to his beneficiaries.
Remember that trust departments are here to provide professional services not only with respect to trusts and estates, but to also provide assistance with everyday financial matters to people needing or desiring it during their lifetime.
The most important point to remember when considering naming a trust department to act on your behalf is that the financial institution is a disinterested third party—disinterested in that it will not inherit any part of your estate and, therefore, will really look out for your best interests.
None of these services are free because they are valuable services and because of the liability that a financial institution takes on once it agrees to act on your behalf in any capacity. It is liable not only to you, as the customer, but to the beneficiaries of your estate. So proper record keeping and procedures do come at a cost but in the end they pay out in the peace of mind provided to you.
Talk to your financial institution if you want to know what other services it can provide to you.
Editor’s note: Dara L. McKinney is a Trust Officer at Los Alamos National Bank. She has worked at LANB since January 2009
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