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Is a Personal Trust Right for You?

A client was working with a Schwab financial consultant out of the K Street Branch in Washington, D.C. The client, who was on the cusp of retirement, was facing a raft of complicated financial considerations: He had just taken his commercial-mortgage business public and needed help managing his (now considerable) assets, minimizing his estate and income taxes, and giving to charity.

The financial consultant put in a call to Damian Shaw, an investment officer at the Charles Schwab Trust Company, to see if a trust might make sense for this client. Seeing that an off-the-shelf solution was out of the question, Damian embarked on a fact-finding mission, talking in depth with the client, his Schwab financial consultant and his attorney.

“As it turned out, the bulk of this gentleman’s wealth was concentrated in thinly traded stock in his mortgage company,” Damian recalls. “He was eager to diversify but sensitive about potentially flooding the market with his shares and thus diluting the value of the stock.”

In the end, the client created a charitable remainder trust (CRT), a type of personal trust designed to reduce estate and income taxes and create current income for the grantor (the creator of the trust) or another individual, while leaving the remaining assets to charity. If the assets in the trust grow, it can increase the income stream, but if they decline, the income stream may be reduced.

“The client wanted to make sure his assets were positioned for potential growth—for two reasons,” Damian says. “Appreciation would increase his income stream during his lifetime—and also extend the reach of his charitable giving after his death.”

Trusts are rarely turn-key, but with some effort they can yield tailor-made results. “We want our clients to be able to tick off every box they have,” Damian says.

There are two basic types of trusts: revocable and irrevocable. A revocable, or living, trust can be changed or dissolved at any time and allows the grantor to control its assets (which are considered the grantor’s for tax purposes). With an irrevocable trust (like a CRT), on the other hand, the grantor loses legal ownership and control of trust property, and a trustee then controls the assets on behalf of the trust’s beneficiaries. An irrevocable trust, unlike a revocable trust, is a separately taxable entity.

“Many people think trusts are only for the very rich or elderly, or that they’re too complicated or not specific enough for their needs,” Damian says. “But there are a number of variations that can be beneficial to those seeking to reduce estate and income taxes while effectively directing their wealth to the right beneficiaries. And clients are often pleasantly surprised by how easy they are to set up.”

What You Can Do Next

  • To discuss your needs with a personal trust expert, call Charles Schwab Trust Company at 877-862-4304.
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Important Disclosures

You should be aware that you have alternatives, including whether to combine your trust’s administrative services with its investment-management services and whom to select as trustee. You may select a third party for administrative services, investment-management services or both, and third parties may be able to provide similar services at different costs.

Charles Schwab & Co., Inc. (Schwab) is affiliated with Charles Schwab Trust Company (CSTC), the corporate trustee for Schwab Personal Trust Services (SPTS). Schwab may introduce clients to CSTC but will neither evaluate whether SPTS is appropriate for each client nor recommend SPTS for any particular client. It is the client’s responsibility to ensure CSTC meets her or his trust needs and to conduct any due diligence that may be required before engaging CSTC.

Schwab financial consultants who introduce clients to CSTC will receive compensation if they choose to use SPTS. CSTC receives fees in connection with administrative services and/or investment-management services as permitted pursuant to the terms of the trust instruments.

Schwab and Schwab Private Client Investment Advisory both earn compensation from CSTC for services provided in connection with SPTS. CSTC may invest trust assets in wrap-fee programs or make use of investment-advisory services that are sponsored by Schwab and/or in which Schwab affiliates provide discretionary or nondiscretionary investment recommendations. Schwab and its affiliates earn compensation for assets selected or recommended by Schwab-affiliated advisors, including management fees for Schwab-affiliated mutual funds and shareholder-servicing fees for mutual funds that participate in the Schwab Mutual Fund OneSource service.

This presentation is for general informational purposes only and is not intended, nor should it be construed, as investment, legal or tax advice. CSTC does not provide legal or tax advice. Consult with your legal counsel and tax advisor about your particular circumstances.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions.


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