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.

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.