BASICS OF: WILLS TRUSTS TRUSTEES LOSS OF A FAMILY MEMBERS

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1 RBC Correspondent Services Wealth Management Group Gazell Pettway Jr Vice President - Wealth Management 60 S. Sixth Street Minneapolis, MN gazell.pettway@rbc.com BASICS OF: WILLS TRUSTS TRUSTEES LOSS OF A FAMILY MEMBERS Page 1 of 9, see disclaimer on final page

2 Wills What is a will? A will may be the most vital piece of your estate plan, even if your estate is a modest one. It is a legal document that lets you direct how your property will be dispersed (among other things) when you die. It becomes effective only after your death. It also allows you to nominate an estate executor as the legal representative who carries out your wishes. In addition, in many states, your will is the only legal way you can name a guardian for your minor children. Without a will, your property will be distributed according to the intestacy laws of your state. The laws of your state also govern the validity of a will. What are the requirements? Requirements vary from state to state. Generally, for your will to be valid, the following requirements must be satisfied. You must be 18 and of sound mind Generally, you must be 18 years of age to execute a will, although some states have a different minimum age requirement. You also must be of sound mind. That means that you must have testamentary capacity--that you know and understand what property you own, its nature, who would inherit it, and the plan for disposition outlined in the will. You must also be free of undue influence or fraud at the time the will is drafted. In other words, you must draw up a will of your own free will. Will must be properly executed Your will must be properly executed. Generally, this means that the will must be: Written--The general rule is that a will must be written. Usually, the will is typewritten or in some printed form. The one exception to the general rule is a nuncupative (oral) will. Nuncupative wills are generally valid only if made during your last illness and only if the witnesses reduce it to writing very soon afterward. Signed by you (the testator)--you or someone in your presence and at your direction must sign the will. Witnessed--Generally, your signature must be witnessed by two competent persons. Some states require three witnesses and some require no witnesses in certain cases, such as when a holographic will is executed. A holographic will is a will that is valid despite not being witnessed because it is completely in the testator's handwriting. Other states may also require that the signatures be notarized. Technical Note: Competency is a legal term. It means that the witnesses are of legal age (generally 18) and understand what they are witnessing. A witness is generally not considered competent if he or she is a beneficiary under the will and would not inherit if you died intestate. If this happens, the state will generally void the devise or legacy to that beneficiary. Some states void bequests to all witnesses. What does your will do? Avoids intestacy Probably the greatest advantage to a will is that it allows you to avoid intestacy. State intestate succession laws, in effect, provide a will if you fail to do so. This "intestate's will" distributes your property the way the state thinks you would have if you had made a will (i.e., to your spouse or closest blood relatives). However, this may not necessarily be what you would want. Also, intestacy has many other disadvantages (e.g., thwarts tax minimization planning). Page 2 of 9, see disclaimer on final page

3 Distributes property according to your wishes With a will, you can leave: (1) a specific bequest (such as jewelry, an heirloom, furniture, or cash), (2) a general bequest (such as a percentage of your property), or (3) your residuary estate (what's left over) to a surviving spouse, a child, another relative, a friend, a trust, a charity, or anyone, according to your wishes. Caution: There are some limits imposed on how you can distribute your property with a will (e.g., you cannot completely avoid a spouse's right to inherit). For more on this topic, see Limits on Rights to Transfer Property in Will. Most states will not let you leave property directly to a pet, nor will they let you set up a trust for a pet in the pet's name. However, you can leave money in your will for someone to care for your pet after your death. A more expensive option is to establish a trust in someone's name, and specify in the trust document that the funds are to be used for looking after your pet. Make sure the caretaker agrees in advance to look after your pet. Nominates a guardian for your minor children In many states, a will is your only means of stating which individual(s) you wish to act as legal guardian for your minor children after you die. You can name a guardian of the person, who takes personal custody of the children, and a guardian of the property or estate, who manages the children's assets. This can be the same or a different person. Caution: The probate court has final approval, but it will usually approve whomever you nominate unless there are compelling reasons not to do so. Nominates an executor A will allows you to designate a person to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating and probating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by the estate, and distributing any remaining assets to your beneficiaries. Caution: The probate court has final approval, but it will usually approve whomever you nominate unless there are compelling reasons not to. Specifies how to pay estate taxes and other expenses Unless you direct otherwise in your will, the beneficiaries will bear liability for estate taxes and other expenses according to state law. To ensure that your beneficiaries receive what you intend for them to have, you can provide in your will that these costs be paid from the residuary estate (what's left over). Or, you can specify which assets should be used or sold to pay these costs. Creates a testamentary trust You can create a trust in your will, which comes into being when your will is probated. Your will sets out the terms of the trust, such as who the trustee is, who the beneficiaries are, how the trust is funded, how the distributions should be made, and when the trust terminates. Tip: Using a trust may be especially important if you have a spouse or minor children who are unable to manage property themselves. Funds a living trust If you have or plan to establish a living trust (one that is created while you are living), your will can transfer ( pourover) any assets that were not already transferred to the trust. Page 3 of 9, see disclaimer on final page

4 Minimizes taxes Your will gives you the chance to minimize taxes and other costs. Example(s): Ken drafts a will that leaves his entire estate to his wife, Sue. Ken dies. None of Ken's property is taxable because he left it all to his wife, and it is therefore fully deductible under the unlimited marital deduction. Are there any tradeoffs? Although the benefits of a will far outweigh the drawbacks, there are some tradeoffs. Assets disposed of through a will are subject to probate Probate (the court-supervised process of administering your will) can be expensive and time-consuming. The length of probate can be affected by several factors including the size and complexity of the estate, any challenges to the will or its provisions, creditor claims against the estate, who your beneficiaries are, state probate laws and the state court system, and tax issues. Owning property in more than one state can result in multiple probate proceedings. This is called ancillary probate. Generally, real estate is probated in the state in which it is located, and personal property is probated in the state in which you are domiciled (i.e., reside) at the time of your death. Will provisions can be challenged in court The validity of your will can be challenged in court. Usually, an unhappy beneficiary or a disinherited heir will present the challenge. Some common claims include: You lacked testamentary capacity when you drew up the will You were unduly influenced by another individual when you drew up the will The will was forged or was otherwise improperly executed The will was revoked. Tip: You can attempt to discourage challenges to your will by including a "no contest" provision. Stipulate in your will that if beneficiaries try to gain a greater portion of the estate, they will be disinherited entirely. For the "no contest" provision to have any bite, however, you must make a bequest to a beneficiary you expect may contest the will, so that he or she has something to lose by contesting your will. The degree to which "no contest" provisions will be enforced varies by state. A typical provision would look like this: "If any beneficiary should contest the probate or validity of my will, then all benefits for the beneficiary shall cease and this instrument shall be interpreted as if the beneficiary had predeceased me" Wills are public documents Once probated, a will becomes a public document, available to anyone who wishes to read it. This can be discomfiting for anyone who has privacy concerns. Anyone can find out what you have left in your estate and to whom you have left it, thus exposing your beneficiaries to fraud or other crimes. Also, if you make negative or embarrassing statements about a person in your will, you leave your estate vulnerable to a libel suit. How do you make a will? Hire an attorney Although a will need not be drafted by an attorney to be valid, it is highly recommended that you seek an attorney's advice to ensure that your will does what you intend. Page 4 of 9, see disclaimer on final page

5 Determine what you leave in your will You must determine whether (1) you can dispose of an asset in your will and (2) whether you should dispose of an asset in your will. Before you can give away what you own, you must figure out what it is that you own. The way in which you own property will determine whether you can transfer that asset in your will. Solely owned property is property owned by you alone and generally can be transferred by will. Property held in joint tenancy, tenancy by the entirety, and community property, on the other hand, generally passes in whole or in part directly to the joint owner at your death. Property held as joint tenants or tenants by the entirety can't be transferred by will. Also, remember that property in which you have already named a beneficiary does not pass by your will (e.g., life insurance, pension plans, IRAs, Totten Trust accounts, Payable on Death accounts). For further information on property that passes outside the will, see Will Substitutes. Once you have determined what you can give away in your will, you need to decide if you should. It may be better to dispose of property while you are living, rather than at death. For example, you may want some transfers to remain private or you may want to reduce estate taxes by giving away during your lifetime property that is likely to greatly appreciate (increase in value). Tell someone your funeral wishes Because your will might not be read immediately after your death, it may not be possible to have your funeral and burial wishes honored if you include them in your will. Instead, put funeral wishes in a separate letter of instruction; leave the letter with a trusted friend, close relative, or your executor; and have it read immediately upon your death. Choose your beneficiaries Beneficiaries are the people and organizations to whom you leave property. They can be relatives, friends, trusts, or charities. The essence of the will-making process revolves around thinking about the property you own and who you want to have it after your death. Select a guardian for your minor children If you have minor children, you will want to nominate a guardian in your will to care for them and their property after you die, should their other parent not be able to care for them. This is an extremely important decision. Select an executor Your executor is responsible for carrying out the instructions of your will and managing the probate process. This includes locating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by the estate, and distributing any remaining assets to your beneficiaries. Choosing an executor is another very important decision. Draft a will Each state has its own laws governing the validity of will provisions, the format a will must take, and execution formalities. Here are some tips: Include a clause revoking any prior wills and codicils Use specific and definite language to avoid questions later about your intent. Example(s): "I leave my daughter, Judy, nothing. I intentionally omit Judy from my will, not because I do not love her, but because she is wealthy in her own right and does not need my money." Mention personal effects (especially valuable articles) specifically Mention outright cash gifts specifically Page 5 of 9, see disclaimer on final page

6 Mention dispositions of real estate specifically Make special provisions for any business interests Make special provisions for the payment of taxes and other costs Consider making special provisions to reduce the amount of specific bequests and legacies in the event that the value of your estate falls below a certain level Properly execute the will Your will must be properly executed. Generally, this means that the will must be: Written--The general rule is that a will must be written. Usually, the will is typewritten or in some printed form. However, some states allow a holographic (handwritten) will. The one exception to the general rule is a nuncupative (oral) will. Nuncupative wills are generally valid only if made during your last illness and only if the witnesses put it in writing very soon afterward. Signed by you (the testator)--you, or someone in your presence and at your direction, must sign the will. Witnessed--Generally, your signature must be witnessed by two competent persons. Some states require three witnesses and some don't require any in certain circumstances. Others require that the signatures be notarized. Technical Note: Competency is a legal term. It means that the witnesses are of legal age (generally 18) and understand what they are witnessing. A witness is generally not competent if he or she is a beneficiary under the will and would not inherit if you died intestate. If this happens, the state will generally void the devise or legacy to that beneficiary. Some states void bequests to all witnesses, which has the effect of making interested witnesses competent and the will validly witnessed. Store the will in a safe, accessible place Wills should be stored in a secure and accessible place. Your executor and at least one close family member should know where you keep your will. Storage options include a file in your attorney's office or a fireproof safe at home. In some areas, it is possible to keep a copy of your will on file at the local probate court. Caution: It is not recommended that you store your will in a bank safe deposit box. Some states seal safe deposit boxes upon the owner's death, and the box can be opened only after obtaining the probate court's approval. Review your will annually or upon certain events A will is not a static document and should be reviewed at least annually or whenever your life situation changes. Here are some circumstances under which you may want to revise your will: You marry or remarry You have a child You divorce Your spouse or child dies You move to another state Your income changes You retire The value of your estate changes Page 6 of 9, see disclaimer on final page

7 Tax laws change Can you change or revoke your will? You can amend (change) your will by executing a codicil. A codicil is a separate, written, and formally executed document that becomes part of your will. A codicil generally should be used only for minor changes to your will. You should execute a new will if there are many changes or a major change. Revoking your will must be done very carefully. If not done correctly, the will remains valid until properly revoked or superseded. Most state laws require that the will be revoked by a subsequent instrument (a new will) or by a physical act (e.g., destroying or defacing it). That means that the will must be either burned, torn, or canceled with the intent to revoke. Example(s): Example A: Mary executes a valid will leaving her entire estate to Jason. Mary throws her will in the trash by mistake. The will is burned. The will is not revoked because there was no intent on Mary's part to revoke. Example(s): Example B: Steven executes a valid will leaving his entire estate to Jill. Steven later changes his mind and decides to leave one-half of his estate to Jack. Steven executes another will and includes a provision that specifically revokes the first will. Steven also writes "REVOKED" on the top and across all signatures on the first will, dates it, and signs it. The court will probably honor the revocation of the first will and uphold the validity of the second will. What types of wills are there? Preprinted wills Preprinted wills or wills generated by computer software packages are legally valid in some states. However, they are generally inappropriate for people with more than small, uncomplicated estates because of their one-size-fits-all nature. Instead, they may be an appropriate starting place for determining what type of property you own and to whom you want to leave it. Holographic wills Holographic wills are permitted in some states, but only under certain conditions. A holographic will is a will that is valid despite not being witnessed, because it is written entirely in the testator's handwriting. Nuncupative wills Oral or nuncupative wills are recognized by very few states and only in very limited circumstances--usually when a person is near death, has no will, and has no time to write one. Often, states require that the provisions of an oral will be committed to writing soon after they are stated, and they limit the value and type of property that can be distributed in this manner. Video wills Currently, no state accepts a videotaped will. However, if you are concerned about challenges to your will, a video showing how the will was executed may help prove that you were of sound mind or that the will was executed properly. Pourover will With a pourover will, you can leave all or part of your estate to a trust after your death. Joint will A joint will is a single will that serves two or more people. Joint wills are extremely rare and generally undesirable. Page 7 of 9, see disclaimer on final page

8 Mutual will A mutual will is drawn up by one individual and is conditioned on an agreement with a second individual to dispose of his or her property in a particular way. It is sometimes called a contractual will. Like joint wills, mutual wills are quite rare and generally undesirable. Living will Unlike a traditional will, which disposes of your property, a living will specifies which medical means, if any, are to be used to keep you alive under certain conditions. Page 8 of 9, see disclaimer on final page

9 RBC Correspondent Services Wealth Management Group Gazell Pettway Jr Vice President - Wealth Management 60 S. Sixth Street Minneapolis, MN gazell.pettway@rbc.com Trust Basics Whether you're seeking to manage your own assets, control how your assets are distributed after your death, or plan for incapacity, trusts can help you accomplish your estate planning goals. Their power is in their versatility--many types of trusts exist, each designed for a specific purpose. Although trust law is complex and establishing a trust requires the services of an experienced attorney, mastering the basics isn't hard. What is a trust? A trust is a legal entity that holds assets for the benefit of another. Basically, it's like a container that holds money or property for somebody else. There are three parties in a trust arrangement: The grantor (also called a settlor or trustor): The person(s) who creates and funds the trust The beneficiary: The person(s) who receives benefits from the trust, such as income or the right to use a home, and has what is called equitable title to trust property The trustee: The person(s) who holds legal title to trust property, administers the trust, and has a duty to act in the best interest of the beneficiary You create a trust by executing a legal document called a trust agreement. The trust agreement names the beneficiary and trustee, and contains instructions about what benefits the beneficiary will receive, what the trustee's duties are, and when the trust will end, among other things. Funding a trust the trust with a life insurance policy. Potential trust advantages: Minimize estate taxes Shield assets from potential creditors Avoid the expense and delay of probate Preserve assets for your children until they are grown (in case you should die while they are still minors) Create a pool of investments that can be managed by professional money managers Set up a fund for your own support in the event of incapacity Shift part of your income tax burden to beneficiaries in lower tax brackets Provide benefits for charity Potential trust disadvantages There are costs associated with setting up and maintaining a trust, which may include trustee fees, professional fees, and filing fees Depending on the type of trust you choose, you may give up some control over the assets in the trust Maintaining the trust and complying with recording and notice requirements can take considerable time Income generated by trust assets and not distributed to trust beneficiaries may be taxed at a higher income tax rate than your individual rate You can put almost any kind of asset in a trust, including cash, stocks, bonds, insurance policies, real estate, and artwork. The assets you choose to put in a trust will depend largely on your goals. For example, if you want the trust to generate income, you should put income-producing assets, such as bonds, in your trust. Or, if you want your trust to create a fund that can be used to pay estate taxes or provide for your family at your death, you might fund Page 1 of 2, see disclaimer on final page

10 Whether you're seeking to manage your own assets, control how your assets are distributed after your death, or plan for incapacity, trusts can help you accomplish your estate planning goals. For more information, consult an experienced attorney. Types of trusts There are many types of trusts, the most basic being revocable and irrevocable. The type of trust you should use will depend on what you're trying to accomplish. Living (revocable) trust A living trust is a trust that you create while you're alive. A living trust: Avoids probate: Unlike property that passes to heirs by your will, property that passes by a living trust is not subject to probate, avoiding the delay of property transfers to your heirs and keeping matters private Maintains control: You can change the beneficiary, the trustee, any of the trust terms, move property in or out of the trust, or even end the trust and get your property back at any time Protects against incapacity: If because of an illness or injury you can no longer handle your financial affairs, a successor trustee can step in and manage the trust property for you while you get better. In the absence of a living trust or other arrangement, your family may have to ask the court to appoint a guardian to manage your property A living trust can also continue after your death--you can direct the trustee to hold trust property until the beneficiary reaches a certain age or gets married, for instance. Caution: Despite the benefits, living trusts have some drawbacks. Property in a living trust is generally not protected from creditors, and you cannot avoid estate taxes using a living trust. Irrevocable trusts Unlike a revocable trust, you can't easily change or revoke an irrevocable trust. You usually cannot change beneficiaries or change the terms of the trust. Irrevocable trusts are frequently used to minimize potential estate taxes. The transfer may be subject to gift tax at the time property is transferred into the trust, but the property, plus any future appreciation, is usually removed from your gross estate. Additionally, property transferred through an irrevocable trust will avoid probate, and may be protected from future creditors. Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources. Page 2 of 2 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2011

11 What Is a Trust? A trust is a legal relationship where someone (the grantor) arranges with another (the trustee) to hold property for the benefit of a third party (the beneficiary). The grantor transfers a split ownership of property--legal ownership to the trustee and beneficial ownership to the beneficiary. The grantor names the beneficiary and trustee and establishes the trust rules, which are typically spelled out in a trust agreement. The trustee is legally responsible for managing the property according to the trust rules. The beneficiary receives the financial benefits (income, principal, use, and enjoyment) from the property. Trust Agreement Grantor creates and funds the trust Property held in Trust Establishes rules of trust and trustee's powers. Beneficial ownership Beneficiary Legal ownership Trustee Page 2 of 3, see disclaimer on final page

12 Selecting a Trustee What is it? In general A trustee is a person (or institution) selected to administer a trust. A trustee's role is to adhere to the terms of the trust document and fulfill its objectives. A trustee can be an individual (professional or nonprofessional) or a corporate trustee, such as a bank or trust company. You, as the grantor, should choose a trustee carefully because an inappropriate choice could invalidate the trust and have serious tax consequences. You must also weigh many other personal, family, business, investment, and nontax concerns. For a large or complicated trust, a combination of individual and corporate trustees may best provide the expertise needed to manage the trust with the flexibility to respond to beneficiaries' changing needs. Trust administration Trust administration is the area of law that defines a trustee's duties, powers, and liabilities in relation to the beneficiaries. A trustee has specific duties. The scope of a trustee's powers depends on the extent of those duties. Because the trustee is personally liable for breaches of duty, the extent of a trustee's duties also determines his or her liability. Selecting a trustee Eligibility and tax considerations As the trust's grantor (the person establishing the trust), you can name any of the following as a trustee: yourself, your spouse, family, friends, the beneficiaries, business associates, professional advisors, a bank, or a trust company. Caution: However, you must investigate carefully before appointing a trustee because the tax consequences can vary widely, depending on whom you name. If the trustee you appoint doesn't meet state trust law requirements, the trust will be invalid and provide none of the intended tax benefits. There are a number of situations in which it's inadvisable to appoint yourself or a beneficiary as trustee: A sole beneficiary cannot be sole trustee--according to state trust law requirements, if the sole beneficiary is the sole trustee, the trust is invalid. A beneficiary can be a trustee only if there are other beneficiaries and/or other trustees. Example(s): If Sue sets up a trust with herself as the sole beneficiary, her trust is invalid if she is also the sole trustee. This is not because she can't be both grantor and trustee. It's because she can't be both sole beneficiary and sole trustee. However, if she appoints Dan, her tax attorney, as cotrustee, or she if adds her niece, Jessie, as another beneficiary, her trust may be valid. Testamentary trusts --It's inadvisable to name a beneficiary as the trustee of a testamentary trust. If the trust document is drafted with the sole beneficiary as the sole trustee, the trust could be invalidated and the IRS could include the assets in the beneficiaries' gross estates for estate tax purposes. Example(s): Glenn appoints his spouse, Anna, as the sole trustee of a trust intended to avoid estate taxes at her death. If the trust is not properly drafted, the IRS could include the trust in Anna's gross estate because she cannot be both sole trustee and sole beneficiary. Irrevocable trusts --If your primary purpose in setting up an irrevocable trust is to avoid federal and state income, estate, or generation-skipping transfer taxes, you should select an independent trustee. You could appoint yourself, but only in certain restricted circumstances and with severely diminished powers. Otherwise, you face the risk that the IRS could include the trust assets in your gross estate. Page 2 of 6, see disclaimer on final page

13 Example(s): Mrs. Dickinson, a widow, sets up an irrevocable trust for her child, and names herself as trustee. If she dies, the IRS could include the trust assets in her gross estate, even though the trust was irrevocable. Revocable trusts --For tax purposes, it doesn't matter who you name as trustee. You'll be taxed on the income regardless of whether the trustee is you, your spouse, your family member, your friend, a beneficiary, a business associate, a professional, or a bank or trust company. Other considerations A trustee's responsibilities often span at least one generation and may extend beyond two or three. This should have a significant impact on your choice of trustee or on your decision to appoint cotrustees or successor trustees. You must also weigh and consider many other personal, family, business, investment, and nontax factors. For example, does your candidate possess the necessary investment, accounting, and tax planning expertise? On the other hand, does he or she know the beneficiaries and will he or she be sensitive to their changing needs? Combining professionals and nonprofessionals as cotrustees Combining a professional and a nonprofessional as cotrustees can provide the longevity the role requires, protect against possible adverse tax consequences, and balance the specialized knowledge of a professional trustee with the personal touch of a family member or trusted friend. If your estate is large or the trust provisions complex, you should consider selecting one or more professional trustees. Laws and trust provisions govern trustee's conduct State laws govern a trustee's conduct. However, you can modify the effect of these laws to some extent through appropriate provisions in the trust document. What are the duties of a trustee? In general A trustee has many specific duties to fulfill, including the duty to preserve, protect, and invest the trust assets. Some of the more important duties follow. However, keep in mind that as a grantor you may modify the trustee's duties to some extent through appropriate provisions in the trust document. Duty of loyalty The most basic duty of a trustee is that of loyalty to the beneficiaries. This duty needn't be specified in the trust document. It arises out of the fiduciary relationship between the trustee and the beneficiaries. This requires the trustee to administer the trust solely in the interests of the beneficiaries. In case of conflict of interest between the trustee and the beneficiaries, the trustee must resolve the conflict in favor of the beneficiaries, since this is the purpose of the trust. Duty to keep and render accounts A trustee must keep clear and accurate records of income, expenses, and investment gains and losses. These records are necessary for filing the annual fiduciary income tax return. Additionally, the trustee has a personal stake in maintaining accurate records. First, he or she is personally liable for costs that arise due to incomplete or inaccurate records. Second, the court can deny or decrease the trustee's pay or remove him or her from office. Third, beneficiaries may, within reason, compel a financial accounting. Duty not to delegate A trustee may not delegate the administration of the trust or the performance of his or her duties to others, unless the terms of the trust allow it. On the other hand, in areas where the trustee does not possess specialized knowledge or skill, it would be prudent for the trustee to employ professionals, such as accountants, appraisers, attorneys, bankers, and brokers. No hard and fast rules exist about this. Individual circumstances must dictate the appropriate actions. Page 3 of 6, see disclaimer on final page

14 Duty to keep trust property separate A trustee commits a breach of trust if he or she commingles trust assets with his or her personal assets, even if the commingling provides him or her with no benefit. This rule makes trust assets easier to trace, prevents them from being seized by the trustee's personal creditors, and makes them less subject to waste. Even if the trustee doesn't commingle trust assets, he or she commits a breach of trust if he or she takes title to the assets. Trust assets must belong to the trust. Otherwise, the trustee could claim that profitable investments were his or her property, while unprofitable investments belonged to the trust. Duty to exercise reasonable care and skill A trustee must exercise reasonable skill and care in administering the trust. The trustee's actions must meet the prudent person standard, meaning he or she must administer trust assets with the same degree of skill and care that a person of ordinary prudence would use in managing his or her own personal assets. Thus, a trustee can be liable for mismanaging trust assets if his or her actions fail to measure up to the prudent person standard. Duty regarding investment A trustee must satisfy the prudent person standard when investing trust assets. He or she must consider both the safety of the capital as well as the likelihood of income. The trustee is not required to invest the funds for capital appreciation. Rather, his or her main responsibility is to conserve the original trust assets and invest them to yield a reasonable income. On the other hand, the trustee is not required to invest in the most conservative investments, such as government bonds. If another investment prudently yields a higher return, the trustee may purchase it. The trustee's goal should be to preserve the assets to carry out the objectives of the trust. What are the powers of a trustee? In general Since a trustee's duties and powers are interrelated, the scope of a trustee's powers depends on the extent of his or her duties. A trustee's privileged powers are those he or she can exercise without violating a duty to the beneficiaries. A combination of state law and trust provisions grant powers to the trustee. Although a power may not be specifically granted, it may be implied from the trust terms. As the grantor, you can expressly confer a power through a provision in the trust agreement. Likewise, you can prohibit a trustee from exercising a specific power. Power to incur expenses A trustee may incur expenses that are reasonable, necessary, and appropriate to preserve trust assets. Power of sale A trustee may sell trust assets to pay debts, administration expenses, and taxes. The terms of the trust dictate the scope of this power. For example, salable assets may include real estate unless the trust agreement prevents it. If the terms of the trust were unclear, or if a required sale of assets would defeat or hamper the trust's objectives, the trustee must obtain court approval to deviate from the terms of the trust. Power to mortgage or lease A trustee may mortgage trust property or pledge it as collateral for a loan if a statute or the terms of the trust specifically allows it. Otherwise, the trustee may not mortgage or pledge the property since this could result in its loss. A trustee, however, usually may lease trust property unless the trust agreement specifically forbids it. This is because the trustee has a duty to make the property productive. If the trust contains land, the principal way of making land productive is by leasing it. Page 4 of 6, see disclaimer on final page

15 Power to continue a business A court may allow a trustee to operate a business if its sale would cause a loss to the trust. Under some circumstances, a trustee may continue business operations for a brief period of time without court approval in order to sell the business as a going concern. Otherwise, a trustee may not carry on the operations of an active business unless the trust agreement specifically allows it. In fact, the trustee has a duty to dispose of the business and invest the proceeds in appropriate investments. What are the liabilities of a trustee? In general If a trustee intentionally or negligently violates a duty to the beneficiaries or misuses a power, he or she commits a breach of trust. The extent of a trustee's liability depends on the scope of his or her duties and powers. If a breach of trust causes a loss or depreciation in the value of the trust assets, the trustee is personally liable for the amount of the loss. Likewise, if a breach of trust results in a gain, the trustee must return any profit to the trust. What is a trust protector? A trust protector is an individual, committee, or entity named in a trust document that is given power over the trustee and authority to make major changes to the trust document. A trust protector does not manage the day-to-day administration of the trust; that is the job of the trustee. The purpose of a trust protector is to give flexibility to an irrevocable trust, and to have a check and balance against trustee failures and abuse. Typically, a trust protector can amend provisions in the trust document in order to address legal and tax law changes, changes in the circumstances of the beneficiaries, or any other possible future circumstance. A trust protector can also act as a liaison between the trustee and the beneficiaries, helping to resolve any disputes that may arise. There is no set list of powers that can be given to a trust protector. The grantor must anticipate which powers might be necessary in order to carry out his or her intentions and the objectives of the trust. Those powers (and limitations) should be carefully defined in the trust document (or separate letter, if a trust protector is named after the trust has been created). Additionally, the grantor should provide some guidance to the trust protector regarding what is expected of him or her. The powers given to a trust protector can be limited or broad. For example, a trust protector can be given the authority to oversee, direct, remove, add, or replace the trustee, or expand or limit the trustee's powers. A trust protector can also be given the power to add or delete beneficiaries, increase or decrease the interests of any beneficiaries, veto or direct trust distributions, regulate trust investments, change the trust situs or governing law, or even terminate the trust. The grantor, however, should list only those powers that will further the trust's purpose, and resist an all-inclusive listing, which may cause friction between the trust protector and the trustee, or result in undesirable legal or tax consequences. As the name implies, a trust protector is meant to be a safety measure, giving the grantor peace of mind. A grantor may want to name a trust protector if he or she: Is concerned that the trustee will fail to exercise his or her duties in a satisfactory manner Would like to withhold certain powers from the trustee Would like a neutral third party to act as moderator between the trustee and the beneficiaries Page 5 of 6, see disclaimer on final page

16 RBC Correspondent Services Wealth Management Group Gazell Pettway Jr Vice President - Wealth Management 60 S. Sixth Street Minneapolis, MN gazell.pettway@rbc.com If your loved one was a veteran, you may be eligible for burial and memorial benefits. Call to find the nearest VA regional office. Duplicate copies of marriage and birth certificates are available at the county clerk's office where the marriage and births occurred. To get a duplicate copy of a military discharge, contact the National Personnel Record Center, 9700 Page Avenue, St. Louis, MO If there is no one authorized to open the decedent's safe-deposit box, petition the probate court for an order to open. Death of a Family Member Checklist Losing a loved one can be a difficult experience. Yet, during this time, you must complete a variety of tasks and make important financial decisions. You may need to make final arrangements, notify various businesses and government agencies, settle the individual's estate, and provide for your own financial security. The following checklist may help guide you through the matters that must be attended to upon the death of a family member. Note: Some of the following tasks may have to be completed by the estate's executor. Initial tasks Upon the death of your loved one, call close family members, friends, and clergy first--you'll need their emotional support. Arrange the funeral, burial or cremation, and memorial service. Hopefully, the decedent will have made arrangements ahead of time. Look among his or her papers for a letter of instruction containing final wishes. Such instructions may also be stated in his or her will or other estate planning documents. Arrange any cultural rituals, and make any anatomical gifts. Notify family and friends of the final arrangements. Alert your loved one's place of work, union, and professional organizations, and any organizations where he or she may have volunteered. Contact your own employer and arrange for bereavement leave. Place an obituary in the local paper. Obtain certified copies of the death certificate. The family doctor or medical examiner should provide you with the death certificate within 24 hours of the death. The funeral home should complete the form and file it with the state. Get several certified copies (photocopies may not be accepted)--you will need them when applying for benefits and settling the estate. Review your family member's financial affairs, and look for estate planning documents, such as a will and trusts, and other relevant documents, such as deeds and titles. Also locate any marriage certificate, birth or adoption certificates of children, and military discharge papers, which you may need to apply for benefits. These documents may be found in a safe-deposit box, or the decedent's attorney may have copies. Report the death to Social Security by calling If your loved one was receiving benefits via direct deposit, request that the bank return funds received for the month of death and thereafter to Social Security. Do not cash any Social Security checks received by mail. Return all checks to Social Security as soon as possible. Surviving spouses and other family members may be eligible for a $255 lump-sum death benefit and/or survivor's benefits. Go to for more information. Make a list of the decedent's assets. Put safeguards in place to protect any property. Make sure mortgage and insurance payments continue to be made while the estate is being settled. Arrange to retrieve your loved one's belongings from his or her workplace. Collect any salary, vacation, or sick pay owed to your loved one, and be sure to ask about continuing health insurance coverage and potential survivor's benefits for a spouse or children. Unions and professional organizations may also offer death benefits. If the death was work-related, the decedent's estate or beneficiaries may be entitled to worker's compensation benefits. Contact past employers regarding pension plans, and contact any IRA custodians or trustees. Review designated beneficiaries and post-death distribution options. Locate insurance policies. The policies could include individual and group life insurance, mortgage insurance, auto credit life insurance, accidental death and dismemberment, credit card insurance, and annuities. Contact all insurance Page 1 of 2, see disclaimer on final page

17 Do not be hasty when settling your loved one's estate. Important decisions need to be made regarding distributions, which must be made in compliance with the will and applicable laws. Seek an experienced estate planning attorney for advice. If your family member didn't already make final arrangements or leave final instructions, go to for some helpful information about funerals, burials, and memorial services. companies to file claims. Contact all credit card companies and let them know of the death. Cancel all cards unless you're named on the account and wish to retain the card. Retitle jointly held assets, such as bank accounts, automobiles, stocks and bonds, and real estate. If the decedent owned, controlled, or was a principal in a business, check to see if there are any buy-sell agreements under which his or her interest must be sold. Within 3 to 9 months after death File the will with the appropriate probate court. If real estate was owned out of state, file ancillary probate in that state also. If there is no will, contact the probate court for instructions, or contact a probate attorney for assistance. Notify the decedent's creditors by mail and by placing a notice in the newspaper. Claims must be made within the statute of limitations, which varies from state to state (30 days from actual notice is common). Insist upon proof of all claims. A federal estate tax return may need to be filed within 9 months of death. State laws vary, but state estate tax and/or inheritance tax returns may also need to be filed. Federal and state income taxes are due for the year of death on the normal filing date, unless an extension is requested. If there are trusts, separate income tax returns may need to be filed. You may want to seek the advice of a tax professional. Within 9 to 12 months after death Update your own estate plan if your loved one was a beneficiary or appointed as an agent, trustee, or guardian. Update beneficiary designations on your retirement plans, including IRAs, and transfer-on-death accounts on which the decedent was named beneficiary. Reevaluate your budget, and short-term and long-term finances. Reevaluate your insurance needs, and update beneficiary designations on insurance policies on which the decedent was the named beneficiary. Reevaluate investment options. Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources. Page 2 of 2 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2011

18 Loss of Spouse Checklist General information Yes No N/A 1. Has relevant personal information been gathered? Name, age, health status Dependents and family members 2. Has financial situation been assessed? Income Expenses Assets Liabilities Insurance coverage Notes: Immediate concerns Yes No N/A 1. Have family members, friends, and employer been contacted? 2. Were written wishes of the deceased reviewed? 3. Has a funeral home/funeral director been engaged? 4. Is the funeral service organized? 5. Have burial, interment, or cremation arrangements been made? Page 2 of 9, see disclaimer on final page

19 6. Has the obituary been drafted and sent to the appropriate newspapers/publishe rs? 7. Are funeral expense payment arrangements complete? 8. If deceased was a business owner, have provisions been made for the short-term continuation of the business? Notes: Next steps: getting organized Yes No N/A 1. Have the appropriate records been gathered and organized? Birth certificate Marriage certificate Divorce decree Military service Death certificate Life insurance policies Investment documents Will Tax information Employee benefits information 2. Have appropriate advisors been contacted? Attorney Accountant/tax advisor Insurance professional Other(s) Page 3 of 9, see disclaimer on final page

20 Notes: Insurance considerations Yes No N/A 1. Have claims been filed with insurance companies? Individual life insurance policies Group life insurance policies Employer-based life insurance policies Accidental death and dismemberment policies Travel insurance policies Mortgage life insurance policies Credit life insurance policies 2. Have surviving spouse's insurance needs been re-evaluated? Life insurance Health insurance Disability insurance Homeowners insurance Auto insurance Liability insurance Long-term care insurance 3. Have beneficiary designations been reviewed and changed as appropriate? Notes: Other available benefits Yes No N/A Page 4 of 9, see disclaimer on final page

21 1. Have other available benefits been claimed and/or agencies notified? Social Security survivor's benefits Social Security death benefits Federal employee benefits Civil service benefits State government employee benefits Military benefits Deceased spouse employee benefits Qualified retirement plan/ira benefits Notes: Retirement planning concerns Yes No N/A 1. Have retirement planning needs been re-evaluated? 2. Have beneficiary designations for existing IRAs and retirement plans been updated as appropriate? Notes: Settling the estate Yes No N/A 1. Have the executor/administrat or, trustee(s), guardians, and heirs been contacted? 2. Has an attorney and/or other advisor(s) been contacted? Page 5 of 9, see disclaimer on final page