For some credit unions, it continues to take a whole lot of arm twisting to prove that offering trust services to their members is really worth the effort and time commitment needed to see a steady return on investment.
The fallout from the recession coupled with the alignment of other factors may have led to an increased urgency for credit unions to reconsider trust services, according to a new report from the Filene Research Institute. "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.
While there is an increased focus on wooing younger people to credit unions, the average member age is still in the mid-forties. That range nearly mirrors what Filene discovered: About one in 10 U.S. households with an adult at least 50 years old has a living trust and the average trust holder is 72 years old. That person has 14 years of formal education, about $1 million in nonhousing wealth and three children.
The authors of the report used RAND Corp.'s Health and Retirement Study to track the financial behaviors of American consumers born through 1953. Retired or nearing retirement, this is the group that is most likely to need and use trust services, according to Filene.
"Some credit unions don't realize the potential of trust services," said Jinkook Lee, a Filene research fellow, a senior economist at RAND Corp. and one of the authors of the report. "It's like with car loans, almost everyone uses them, especially young people and those with modest means." However, trusts are tailored to older members, so there's a smaller-but potentially lucrative-pool of potential users.
Lee acknowledged that a much deeper commitment on the credit union's part comes with the territory as relationships need to be nurtured to see any benefits. Making that connection is easier with women, who are about one-third more likely than men to establish living trusts, according to the report. Women also place larger shares of their assets in trusts. Lee said this occurs because wives tend to inherit their husband's trust accounts. Whatever the reason, credit unions can design an array of marketing campaigns targeted at this influential group.
The researchers also found that savers and investors with lump-sum assets are the best targets for establishing living trusts.
Ben Rogers, research director at Filene, said an entire generation of Americans is beginning to retire in a new way. In 1980, 84% of workers at medium to large companies were eligible for a traditional defined benefit plan. Even until the late 1990s, more than half of workers at medium to large companies could expect that pension. But by 2008, just one-third had access to defined benefit plans.
"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," Rogers said.
As defined benefit plans disappear, they are being replaced by defined contribution plans such as 401(k)s, 403(b)s and individual retirement accounts. Credit union members are living off of those nest eggs and planning to leave slices of the eggs to their heirs, Rogers noted. The report found that those with a defined contribution plan are twice as likely to set up a trust as those without.
Lee said credit unions have an inroad to building relationships not only with older members who have trusts, but also with their beneficiaries. Among those who reported a 100% probability of leaving $100,000 or more to their heirs, nearly one in five have living trusts.
"Grantors and beneficiaries who are treated well by the credit union will be much more likely to keep their relationships intact," Rogers said. "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."