Jun 08 2010

Credit Union Implications of Living Trusts

An entire generation of Americans is beginning to retire in a new way. As defined benefit plans disappear, they are being replaced by defined contribution plans: 401(k)s, 403(b)s, and individual retirement accounts (IRAs). Credit union members are living off those nest eggs and planning to leave slices of the eggs to their heirs. The systematic collapse of the company pension, which shows no signs of stopping, means real changes in the way Americans retire— and in the way financial institutions can serve retirees.

Credit Union Implications of Living Trusts offers a quantitative look at trends in trust creation and detailed breakdowns of who is most likely to open trust accounts. As financial partners of choice for many of today’s retiring workers, credit unions should take a hard look at offering trust services, which can keep valuable relationships and valuable assets at the credit union. Grantors and beneficiaries who are treated well by the credit union will be much more likely to keep their relationships intact. This report helps credit unions profile members who are most likely to use trust services.

About one in 10 U.S. households with an adult at least 50 years old has a living trust. The average trust holder lives in an attractive demographic: He or she is 72 with 14 years of formal education, about $1 million (M) in nonhousing wealth, and three children. As more retirees receive retirement benefits as lump-sum rather than annuity payments, more have an opportunity to set up living trusts.

In addition, the research reveals interesting and useful details about trust holders:

  • High earnings, high education levels, and high asset levels all correlate positively with establishing trust accounts.
  • Interestingly, women are about one-third more likely than men to establish living trusts. Women also place larger shares of their assets in trusts.
  • Savers and investors with lump-sum assets are the best targets for establishing living trusts, so having a DC plan, like a 401(k), is a powerful determinant of the likelihood of establishing a living trust. Those with a DC plan are twice as likely to set up a trust as those without.

Retirees, particularly the most well off, are changing the financial face of retirement. Credit unions should strongly consider offering competitive trust services—or risk getting left behind.

Report Number 212