U S A A T r u s t S e r v i c e s Protect your future and that of your loved ones You have worked a lifetime to accumulate your assets. Now you need to protect those assets and ensure they keep their value. Managing your wealth takes careful coordination of financial management and legal planning to protect assets from the costs that can erode their value and delay the efficient distribution of assets to your heirs. Estate settlement costs, taxes, legal fees, privacy issues and other considerations need to be taken into account when you consider how to manage your wealth today and for the future. Carefully coordinated trust and financial planning services are a vital part of that plan. USAA Trust Services 1 Security. Stability. Protection. 2 What is a trust? A trust is a flexible financial planning tool that holds the assets of an individual (the settlor or grantor) for the benefit of one or more beneficiaries. The grantor names a trustee, and possibly a co-trustee, to manage the trust during the grantor’s lifetime and distribute, at death, the trust’s assets according to the grantor’s wishes. Often, an institution that provides professional trust management services is chosen as either a trustee or co-trustee. Why have a trust? Trusts are not only an estate-planning tool for the very wealthiest people. A trust can benefit people with even modest assets as a part of a financial management strategy. As part of a comprehensive financial management plan, a trust can be tailored to protect your assets and give you greater financial peace of mind. Trusts can help you: • Maintaincontinuityofassetmanagementintheevent ofincapacitationordeath • Provideforyourfamily’sfinancialneedsafteryourdeath • Ensureprivacyforyourestate • Eliminateprobatefeesonassetsheldinlivingtrust • Reduceoreliminateestatetaxes • Expeditethedistributionofassetstobeneficiaries • Providebettercontroloverassetdistributiontobeneficiaries withspecialneedseitherduringtheparent’slifetime oraftertheirdemise Customized to Fit Your Needs 3 Who should consider a trust as part of their financial planning strategy? You may benefit from a trust if: • Youwishtoleaveyourestatetoyourspouseandstillmakebequeststoother beneficiariesafteryourspouse’sdeath • Youwanttoprovideforyourcurrentspouse,aswellasanychildrenfroma previousmarriage • Youareconcernedaboutthepossibilityofperiodsofdisabilityandyouwant toensurecontinuousmanagementandprotectionofyourassets • Youwantincreasedcontrolovertheactualdistributionofyourassetsafter death,especiallyinprovidingforbeneficiarieswith“special”needs,suchas disabledpersonsorbeneficiariesunabletomanagetheirinheritance • You’remarriedandyourassetsexceedthemaximumapplicableexclusion amountforfederalestatetaxes. Personal trusts Trusts can protect you and your beneficiaries from many of the costs, difficulties and delays associated with estate settlement. You may use a trust to determine how your assets will be used and/or distributed to your heirs and to ensure your estate is managed according to your wishes in case of incapacity or death. Two commonly used types of personal trusts are the Living Trust and the Testamentary Trust. A Living Trust goes into effect during your lifetime, while a Testamentary Trust is part of your Will and goes into effect at your death. Living trusts A Revocable Living Trust may generally be amended or terminated by the grantor at any time. At your death it can provide for distributions of assets to your beneficiaries while avoiding probate. It can minimize estate settlement-related fees and taxes and is most widely used for asset management continuation in the event of death, incompetence, or disability. It is also a favorite of those who own real estate in multiple states because it is “probate- friendly.” However, because the property remains in your control, it is subject to estate taxes. There are provisions that can help minimize these estate taxes if you meet certain stipulations. An Irrevocable Living Trust provides a similar ability to avoid probate as a Revocable Trust, plus has the potential for additional estate tax savings. It also may offer certain credit protection for beneficiaries. Once property is transferred to this trust, future appreciation of that property is not generally included as part of your estate assets. Essentially, the terms of an irrevocable trust cannot be altered. Testamentary trusts A Testamentary Trust goes into effect at your death. The provisions of the trust are incorporated in your Will and becomes effective when your Will has undergone the probate procedure. This trust is frequently used when a person does not want to change asset registration or otherwise fund a trust during his or her lifetime, but realizes the need to provide for distribution of assests after death. A testamentary trust can help you control asset distribution at your death or continue management and distribution of assets for a period of time after your death. 4 Types of Trusts 5 Bypass trust or credit shelter trust This trust can reduce or eliminate federal estate taxes by maximizing the unlimited marital deduction and Unified Estate and Gift Tax Credit to “bypass” your spouse’s estate, while still allowing your spouse to receive income from the trust. Irrevocable life insurance trusts An irrevocable life insurance trust can be used to buy and hold insurance policies and keep proceeds from those policies out of your taxable estate, subject to certain “look-back” periods. Generation-skipping trusts These trusts transfer property to second-generation beneficiaries (usually grandchildren), without the proceeds from the trust actually becoming a part of the children’s estates. Charitable annuity trust or unitrust This trust enables you to donate to an irrevocable trust and retain the income during your lifetime. After the death of the income beneficiary the assets will be transferred to your designated charity. Gifts to charitable trusts receive an income tax deduction and avoid estate taxes. Other Types of Trusts 6 What is probate? Probate is the legal process of “proving” a Will, which includes, among other things, 1) a court determining that a Will is valid, 2) paying any debts from the deceased’s estate, and 3) distributing assets in accordance with the terms of the Will. Probate assets are subject to probate costs, state and federal estate taxes and, in some states, inheritance taxes. The cost of probate will vary from state to state and is based on state law. Costs can include legal and executor fees, court costs, and appraiser fees. How can a trust help with the probate process? By establishing a trust, those trust assets are generally not subject to public scrutiny and enables the trustee to begin distributing assets according to your wishes, without going through probate. Probating a Will can be costly and lengthy – often six months or more in some states – and is a public process available to anyone who is interested in the details of your estate. What can a trust do that a Will can’t? In addition to reducing probate costs and expediting estate settlement, living trusts or testamentary trusts can provide additional estate tax advantages, as well as asset control. They are particularly useful if you have significant assets and want to provide for your grandchildren, minor children or other beneficiaries who are unable to manage assets on their own. What might the tax advantages be for using a trust? Federal estate taxes have marginal tax brackets. There is also the possibility of state-imposed inheritance taxes. If you plan ahead using a trust, in many instances you can greatly reduce or even eliminate these taxes. Trust Questions and Answers 7 How do I know if a trust is right for me? It depends on your personal goals for the trust. The most common reasons for setting up a trust are: avoiding probate, estate tax relief, greater asset control, providing for your beneficiaries after your death, ensuring assets are distributed according to your wishes, continuity of asset management in the event you become disabled, and privacy. How do I decide what sort of trust to use? There are many different types of trusts and many factors that need to be considered in deciding which one is right for you, including beneficiaries, trust asset amount, estate tax reduction, asset distribution, and the amount of control you want. You and your attorney with your financial advisor should work together to determine which trust is best for you. 8 USAA Trust Services is Here For You Choosing the right trustee One of the most important aspects of creating a trust is selecting the right trustee. A trustee is responsible for ensuring that your investments, assets and financial affairs are handled in accordance with your wishes. A trustee also has fiduciary responsibilities to a trust’s beneficiaries for both asset protection and management, and must keep extensive financial records of all financial activities related to the trust. A corporate trustee can assist with the management of your trust during your lifetime and at death. You can trust USAA Trusts can be complicated and time-consuming to administer, therefore, many turn to an institution with professional trust administrators as their trustee. As your trustee, USAA Federal Savings Bank will provide you with investment, tax and trust administration experience, plus a centralized administrative, and investment team to meet your trust’s needs. We will help you prepare to meet with your attorney by discussing with you the various trusts, Wills and durable powers of attorney that might be useful for your particular financial situation. Using USAA as your trustee ensures continuity of service. Get started with USAA today You have worked too hard for yourself and your family to take your assets for granted or entrust them to anyone who might not be able to manage them effectively. With USAA Trust Services, you have a team of investment and trust administration professionals who can ensure your trust is properly managed and implemented according to your wishes. Although it is difficult to think about providing for your family after your death, setting up a trust could be one of the most generous and caring things you will ever do for them. Call today to discuss how trusts can benefit your estate plan and how USAA Federal Savings Bank can serve as your trustee and assist you in managing the assets in your trust. You can reach us toll free at (877) 899-6325. The preceding discussion is not tax, legal or estate planning advice. Consult with your tax, legal or estate planning professional regarding your specific situation. Fiduciary Responsibilities of a Trustee • Loyalty • MakingAssetsProductive • AvoidingUndueRisk • MaintainingAccurateRecords • CommunicatingwithBeneficiaries • AvoidingConflictsofInterest USAA Trust Services offered by USAA Federal Savings Bank, Member FDIC. 55253-0310 FPS-2008-443 © 2010 USAA. . c e s Protect your future and that of your loved ones You have worked a lifetime to accumulate your assets. Now you need to protect those assets and ensure. manage your wealth today and for the future. Carefully coordinated trust and financial planning services are a vital part of that plan. USAA Trust Services 1 Security.