What is a standby trust?

A standby trust is created during your lifetime, and at the time of your death, the property in the trust is transferred according to the directions in your will. One of the reasons it’s called a “standby trust” is that the owner creates an investment plan and the executor or manager of the trust carries out this plan, but only at the direction of the creator of the trust.

Defining a Standby Trust

The creator of a standby trust may select a certain mix of stocks, commodities and real property for the trust. The manager of the standby trust steps in during an extended vacation, illness, or any time when the owner cannot manage the trust. During these periods, the trust manager is on “standby.” This does not mean the financial professional is not involved in the trust. Even when in standby mode, paid services are being provided to the owner. Most of the time this includes routine maintenance like record keeping, tracking deadlines, executing buy and sell instructions or collecting dividends and interest.

The manager takes over the standby trust upon request and can assume a broad range of responsibilities in addition to maintenance. If the owner is sick or incapacitated, the manager can remove funds from the trust to pay for medical care. The manager’s responsibilities can be listed in the trust contract. At the time of the owner’s death, the manager automatically steps in to keep the trust running smoothly for the benefit of any dependents and beneficiaries. If your wish is to have the trust dissolved and property divided, the manager handles this as well.

Pros and Cons of a Standby Trust

A standby trust is flexible. It does not have to follow any particular pattern and the owner can change or end the agreement at will in most cases. The owner can control investments and decide when a financial professional should be involved. However, the success of the trust depends on the owner’s time commitments and financial insight.

A standby trust, like many trusts, is confidential. Unlike a will, the terms of the trust are not public record. No one but the owner, the manager and any specifically designated individuals will have access to the details of the trust.

Case Studies: Understanding Standby Trusts

Case Study 1: The Johnson Family’s Financial Security

Johnson family sets up a standby trust to ensure financial security for their dependents. The trust creator, Mr. Johnson, carefully selects a diversified mix of stocks, commodities, and real estate for the trust. During his lifetime, Mr. Johnson manages the trust, but he also designates a standby trust manager who can take charge if he becomes incapacitated or unable to manage the trust due to illness.

The standby trust provides peace of mind for the Johnson family, knowing that their financial affairs will be handled smoothly in any situation.

Case Study 2: The Anderson’s Customized Standby Trust

The Andersons decide to create a standby trust to manage their assets and protect their privacy. They customize the trust to suit their unique financial needs and goals. The Andersons’ trust manager is on standby, ready to take over responsibilities whenever necessary, whether it’s during an extended vacation or in case of illness.

Additionally, the Andersons appreciate the confidentiality of the trust, as its terms and details are not made public, ensuring their financial matters remain private.

Case Study 3: The Williams Estate Planning

Mr. Williams utilizes a standby trust as part of his estate planning strategy. He sets up the trust with a clear investment plan and designates a trust manager to handle responsibilities as needed. The standby trust allows Mr. Williams to maintain control over investments and seek professional advice when necessary.

Furthermore, the trust is structured to provide tax benefits for his dependents, helping them avoid death taxes upon his passing.

Getting Legal Help

A standby trust can also be used to manage taxes. Because the trust can be continued at the owner’s death for dependents, they avoid the death tax normally associated with the dissolution of an estate. But this depends on how the standby trust is structured and later divided. Consult an estate planning attorney or tax attorney in addition to a financial manager when setting up a standby trust or any trust.