Trust & Fiduciary Services. Guided by the Strength & Values of America s Credit Unions

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1 Trust & Fiduciary Services Guided by the Strength & Values of America s Credit Unions

2 Growth MEMBERS Trust Company Since 1987 MEMBERS Trust Company has provided trust and investment services to credit union members and private clients throughout the United States. Owned and managed by America s Credit Unions, MEMBERS Trust Company abides by the management philosophy of our owners - to act in the best interest of our clients while fulfilling our fiduciary duty as a trust company. Formed through a cooperative alliance with credit unions across America, MEMBERS Trust Company embodies a new corporate mission for a professional trust and investment company as we operate for the benefit of members and clients, not individual stockholders. These credit unions, with over $80 billion in assets, provide MEMBERS Trust Company with its strategic values and underpin our strength as a national trust and investment firm. As a special purpose federal thrift, MEMBERS Trust Company is supervised by the Office of Thrift Supervision, a federal banking regulator which charters oversees federal savings banks and trust companies. As you might expect from a trust company owned by credit unions, the staff of MEMBERS Trust Company strives to apply the Golden Rule to the people behind each trust. We are committed to understanding the whole story and to never losing sight of the fact that someone s loved one is relying on our professional competency and responsibility to care. The question we always ask ourselves is, How would we want our loved one to be treated by a corporate trustee? MEMBERS Trust Company s job is more than just managing money. Our team of professional advisers believe that their efforts can and do make a difference in the lives of our clients. Our owners would not tolerate anything less.

3 Trusts To Meet Special Family Circumstances & Finances. Protecting Betty and Providing for Children of a Prior Marriage QTIP Trust Phil and Betty, age 67 and 58, were married two years ago. Phil has two adult children from a prior marriage while Betty did not have any children from her previous marriage. Phil wants to be sure Betty receives adequate resources from his estate upon his death to provide financial security and protection but also desires that remaining assets after Betty s death are given to his adult children. With a Qualified Terminable Interest Property Trust (QTIP), Phil can accomplish both goals. Upon Phil s death, property can fund a QTIP which will create financial resources for Betty for as long as she lives. MEMBERS Trust Company as trustee will be charged with the responsibility to make distributions to Betty according to the terms of the trust. Betty cannot amend the terms of the trust or change the remainder beneficiaries (those individuals that will receive the trust property upon the death of Betty). Since Phil s two adult children are the named remainder beneficiaries, he has set up a legal means to accomplish both of his very personal and important life goals - protect his wife and his adult children. Supplementing Public Benefits For Jim Special Needs Trust Jim, the adult child of William and Faye, has learning disabilities which qualifies him for SSI and Medicaid Benefits. If Jim receives assets of more than $ , he will lose these benefits, which are critical for his financial well being. William and Faye supplement these benefits now by taking Jim out to eat, buying special gifts like a PC, television and other gifts and helping out on other special occasions. They want this supplemental support for Jim to continue after their death. With a Special Needs Trust, William and Faye may create a trust that will supplement public benefits but not supplant or replace them. Drafted properly, this Special Needs Trust can continue to pay for similar items that William and Faye have made over their lives and Jim will remain eligible for public benefits as the trust property will not be counted as a resource for Jim. Protecting Anne from Spendthrift and Harmful Habits Spendthrift Trust Sam and Alison have tried to change the spending and other harmful habits of their oldest daughter, Anne. At age 37 Anne has been in drug rehabilitation multiple times and recently declared personal bankruptcy. If Anne is left her inheritance outright, there exists a high probability that the money will be squandered, leaving Anne without resources to pay for housing, food or medical care. At their death, a Spendthrift Trust can be established to pay for these items for Anne. MEMBERS Trust Company, FSB as trustee would require Anne to provide a budget and can make third party payments to ensure basic needs are met. The trust would also shield the trust property from any liens or judgments awarded against Anne.

4 Understanding Trusts...a Time-Proven Legal Tool to Protect Family and Loved Ones. By definition a trust is a form of property ownership where one party (the trustee) holds legal title with the responsibility and duty to manage the assets in the trust for the benefit of another party (the beneficiary). This trustee is charged with the legal duties of prudence, loyalty, full accounting and abidance by the terms of the trust. There are many classifications and types of trusts. Living Trusts - created during one s lifetime and Testamentary Trust - created at one s death. A Living Trust may be irrevocable or revocable which means the trust, may be terminated and amended. Estate planners and attorneys often recommend forming a revocable living trust as a means to avoid probate (See Purposes and Uses of Trust). By creating a trust, the settlor (legal term for person creating a trust) establishes a contract to govern and control the use, purpose and ultimate disposition of property managed by the trust. The beneficiary, in most cases, does not have unlimited access to the trust property. The terms and conditions of the trust establish the ownership rights and privileges the beneficiary possesses with the trust property. Also, the beneficiary in most trusts will not be able to manage assets as investment management is the trustee s duty. So, you can see how a trust can accomplish personal wishes and protects family and loved ones. For example, a spendthrift trust may limit the purpose for which a beneficiary may receive a distribution. As a result, the beneficiary is protected from squandering the trust property. The settlor can also instruct, through the terms of the trust, who will ultimately receive the trust property after the termination of the trust. In many ways, your voice is speaking through the terms and conditions in the trust. If you have very personal wishes like using trust property to only pay a loved one s college expenses, your wishes will be heard and are legally binding. A wonderful innovation under the law, your trust allows you to control the usage and purpose of your property to accomplish personal wishes and meet special needs of loved ones. Definitions of Important Legal Terms Trust - a legal arrangement specifying one or more people or a legal entity (called the trustee) to manage the assets for someone s else benefit (the beneficiaries). Trustor - the person who creates the trust, who owns the property that will be put in the trust. A trustor is also referred to as a grantor, creator or settlor. Beneficiary - the person(s) who will receive the assets of the trust upon your death. Successor Trustee - the person(s) or legal entity you designate to manage your trust. Living Trust - a trust that is created while you are still alive. It can be either revocable (can be amended during your life) or irrevocable (not subject to further amendments). Corpus - property owned by the trust, commonly referred to as corpus of the trust. Testamentary Trust - a trust that is created in a will. Also called a death trust. Does not take effect until the person who made the will dies. Time Proven Benefits & Advantages of a Corporate Trustee. Whether your personal goals and wishes established by the trust will be accomplished depend largely on who will be acting as the trustee on your behalf. Legally, an individual like a family member may act as a trustee but in most cases, there are compelling reasons to consider a Corporate Trustee. Only a bank or trust company chartered exclusively to engage in trust business may act as a corporate trustee. These entities are highly regulated by either a state banking agency or one of the two federal banking regulators. MEMBERS Trust Company, FSB is a trust company chartered as special purpose federal thrift by the Office of Thrift Supervision. In addition to this federal agency, the National Credit Union Administration and the FDIC have regulatory oversight authority over our operations. Unlike individuals serving as trustee, Corporate trustees like MEMBERS Trust Company are subject to examinations and supervisory oversight from governmental agencies to ensure operations are being carried out in a sound and safe manner. Managing a trust requires knowledge of various complex subject matters - trust administration, estate settlement, federal estate and income taxation, property law and wills and estates. MEMBERS Trust Company s method to managing a trust is to utilize a team approach, with members comprised of attorneys and other professionals with legal and investment experience. Daily decisions on trust administration are made leveraging the collective wisdom and knowledge of these team members rather than a sole individual acting as the trustee. Also the duration of a trust may span over multiple generations which may outlast the lifetime or capacity of an individual trustee. Corporate trustees do not have these limitations as they may serve in perpetuity. Managing a trust often requires a trustee to make what is legally referred to as discretionary decisions on whether to pay monies from the trust to a beneficiary. This requires the trustee to carefully weigh the interests and needs of all beneficiaries. Our trust team will approach these decisions with impartiality to help make objective decisions. Family members who act as trustee may find it very difficult to make decisions because of relationships with other family members. Often, family discord and hurt feelings can occur when designated family members are selected to manage family money and property, especially if siblings are selected over other siblings. In selecting a trustee, you should consider the financial strength and stability of the trustee. If a breach of trust occurred resulting in a loss, you would want the trustee to have adequate insurance or capital to indemnify the trust. MEMBERS Trust Company, FSB, owned and managed by credit unions with over $80 billion in assets, is a financially strong and stable corporate trustee to meet this standard.

5 Trusts to Meet Special Family Circumstances & Finances. Avoiding Probate & Guardianship Proceedings Revocable Living Trust Bill and Helen, age 78 and 75, have been married for over 50 years with two adult children and five grandchildren. They want to be sure the surviving spouse will be protected in the event of incapacity. They also wish to avoid probate and want to transfer their assets after their death to their children with minimum legal entanglement and costs. With a revocable living trust, Bill and Helen can maintain complete control over their assets and financial affairs while establishing a legal means to protect the surviving spouse and avoid probate for the benefit of their children. Bill and Helen will be the trustees during their lives but a provision in the trust called a Standby Provision names MEMBERS Trust Company as successor trustee in the event the surviving spouse becomes incapacitated. This provision avoids guardianship proceedings which can be very costly and time consuming for their children. Upon the death of the survivor spouse, MEMBERS Trust Company steps in as trustee and settles and distributes the estate according to the terms of the trust. Probate is avoided as there are no assets held in an individual name of either Bill or Helen. As trustee, MEMBERS Trust Company holds the legal title and will distribute the assets to the named beneficiaries in the trust, which in this case will be their two adult children. Joe and Shirley s Concern About Federal Estate Taxes ByPass / Credit Shelter Trust Joe and Shirley, with a personal net worth of over $4 million, want their estate to avoid paying Federal Estate Taxes. Effective January 1, 2011 any estate with a value of more than $1 million will be at risk to pay Federal Estate Tax 1. In their wills, the attorney will draft a Bypass Trust which will be funded with the maximum exemption allowable under the IRS Code. This Bypass Trust will be for the benefit of the surviving spouse. Upon the death of the surviving spouse, the amount in the Bypass Trust can be transferred free of Federal Estate Taxes. Irrevocable Life Insurance Trust (ILIT) Joe has a $500,000 Life Insurance Policy. The proceeds of this policy will be included in his estate to determine the liability for Federal Estate Taxes. Is there a way to shield these proceeds from being included in Joe s estate? Yes, Joe can create what is referred to as an Irrevocable Life Insurance Trust naming MEMBERS Trust Company as trustee. With annual gifting to the trust, Joe and Shirley can pay the annual premiums. Upon Joe s death, the proceeds will not be included in Joe s estate because Joe did not own the policy as it was transferred to an irrevocable trust 2. MEMBERS Trust Company, FSB offers a service to facilitate the transfer of your current trust to us. Our goal is to make the transfer as simple as possible. Our Trust Transfer Service offers you access to attorneys and investment officers to review your trust. We analyze the trust provisions, investments and current administration to help determine whether a change in trustee is in your best interest. We will contact your bank or trustee, prepare the necessary documents to make the transfer and keep you informed throughout the entire process. Factors to Consider As you evaluate the current administration of your trust, consider the following factors: Accessibility of the Trust Officer Fees imposed by the current trustee Impact on bank merger and consolidation of offices Quality of service provided to the current trustee Investment returns, diversification and risks Agreeing to Act As Personal Trustee for Family Trust Protection Trust Transfer Service...Is a Change In Your Best Interest. Many times, you may have asked yourself, What was I thinking, when I agreed to act as personal trustee of my family trust? Managing assets, resolving family disputes and preparing tax returns can easily turn into a full time and taxing job. MEMBERS Trust Company can partner with you in various ways to minimize your risk and reduce the work load including: Serving as trustee, acting as investment manager, functioning as custodian and bookkeeper, acting as the administrator and serving as co-trustee with you.

6 Trust Investment Management By MEMBERS Trust Company. MEMBERS Trust Company, FSB utilizes a team approach in managing investments. We invite you to review the included insert which list the senior members of our team who all hold the prestigious CFA professional investment designation. We endorse the prudent investment process that calls for us to develop an Investment Policy Statement that acts as a blueprint for the management of assets in your trust, to monitor the investment returns and risk, and to be proactive in implementing changes as deemed necessary to meet your goals. The Investment Team prides themselves on being innovative, diligent and prudent in managing trust investments. In 2004, MEMBERS Trust Company adopted the strategy of using Exchange Traded Funds (ETFs) in portfolio design, making us one of the first trust companies in the United States to recognize the lower costs and tax efficiency of ETFs. In 2008, a survey appearing on Forbes.com listed MEMBERS Trust Company as the top ranked advisor utilizing ETFs in portfolio design. 1. Congress is expected to increase the exemption to $3.5 by this date but has not acted as of the date of this brochure. 2. Joe must not have any incidents of ownership and other restrictions apply Your trust officer will work with you and attorney to set this up.

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