TRUSTS

If you fall into one of the following categories, you should consider sitting down with an estate planning attorney to draw up a trust:

  • You have minor children

    • If you do not have a will your children could receive your assets when they turn 18.  If you have a will you can at least delay that fact until they turn 21.  However, many feel even a 21-year-old can be ill-equipped to handle receiving tens or even hundreds of thousands of dollars.  A trust allows you to install “circuit breakers” staggering the release of funds until your children are mature enough to handle them.

 

  • You are in a second marriage with children on either side

    • Most couples are extremely dedicated to taking care of each other’s children, even if those children are the product of a previous relationship.  However, too often, the level of commitment can wane after one spouse passes away, especially if the surviving spouse remarries a person who is less than interested in supporting someone else’s kids. Establishing a trust helps you ensure that the assets that you accumulated during your lifetime will pass on to your own children as you intended.

 

  • You are flirting with an estate tax issue

    • Most Americans do not pay an estate tax, mainly because the federal exemption is so large.  In 2016, an individual can pass away, and his/her estate can pass down $5.43 million to beneficiaries without having to pay any sort of federal estate tax.  Ohio has eliminated its estate tax.  Kentucky does have an inheritance tax for beneficiaries that are not in the direct ancestral line.

 

  • You are facing an expensive probate or own property in different states

    • Probate fees can become very expensive.  The larger the estate, the larger the fees that will be due, especially if you own property in a different state.  The property in that state will be subject to an ancillary administration which will drive up fees even further.

 

  • You are a private person and do not wish for your monetary worth to be posted on the internet for all the world to see

    • When former Reds owner Marge Schott passed away, she died owning over $120,000,000 in assets.  How do we know this?  She had vast funds that were not placed in a trust.  Therefore, her will and her list of assets are public record and available for public viewing on the probate court’s web site.  Trusts help you keep your affairs private and within the family.

 

  • You wish to leave assets to a special needs child or grandchild

    • Individuals with special needs often require the help of government assistance such as SSI, or Medicaid.  Usually, such assistance requires the individual to fall below certain resource limits.  In other words, they are not allowed to own too much money.  Inheriting even a modest sum can actually do more harm than good as it might push the special needs individual over the resource limits and for him/her off of the government assistance.  Certain types of trust such as a Pooled Medicaid Payback Trust or a Wholly Discretionary trust can help you provide for your loved one while shielding the inheritance from being counted as resource for government assistance eligibility purposes.

 

  • You wish to ensure that your heirs receive a gift even if you have to prepare for a long-term care crisis which may involve Medicaid or Veterans Benefits

    • Irrevocable trusts may be drafted in a manner that allow you to pass assets on to a loved one, yet ensure that the money is still there should you need to tap into it to pay for your long-term health care needs.

Revocable Living Trusts

For most individuals and couples, particularly those who fall into categories 1-5 above, a Revocable Living Trust is often the preferred option.

What is a Revocable Trust?

A Revocable Living Trust is a trust which you create during your lifetime.  It is also been called an Intervivos Trust which means during your life.  The fact that the trust is revocable means that it may be changed or terminated at your wish as long as you continue to be competent at that time.

Why should I use a Revocable Living Trust versus a Will?

One of the major benefits of having a Revocable Living Trust is allowing you to avoid probate.  Also, it will all you to seamlessly manage your assets if you become incapacitated.  Please note however that the Revocable Living Trust does not replace your will, although it will act similar to a will and distribute the property pursuant to your wishes.  Any good estate plan including a Revocable Living Trust will include the use of a Pour Over Will which will pour any assets which have not been titled into the trust into in upon death.

How does my Revocable Living Trust function?

During your lifetime your Revocable Living Trust will pay all of income made to you.  In addition, it allows for you to use any principle that is needed or requested.  Upon your death the Revocable Living Trust will distribute pursuant to your distribution plan in a manner similar to your will.

What exactly are the benefits of a Revocable Living Trust?

The use of a Revocable Living Trust allows for property to be managed uninterrupted by incapacity.  Through proper planning and funding of a Revocable Living Trust if you were to become incompetent your Successor Trustee will be able to step in and manage all your financial affairs for any items that are in the trust.  By doing this planning you may be able to avoid the painful and very expensive process of a guardian appoint over your estate if you were to become incapacitated.

Another major benefit of the Revocable Living Trust is that it avoids probate.  Please note that by doing a Revocable Living Trust you will not avoid all costs, as you will still have to pay legal fees for the drafting of the trust and may have to pay fees for administering the trust.  However, this is often less expensive than the probate process.  Plus, the use of the trust will all you to avoid much of the time delays and aggravations which are associated with the probate procedures.  Further if you have property in other states than where you reside it will also allow you to avoid probate in those states.  Finally, some people like that a Revocable Living Trust provides privacy versus the probate process.

 

Are there disadvantages to a Revocable Living Trust?

One of the disadvantages of the Revocable Living Trust is that any expenses which you incur are done so immediately.  The expenses are not deferred until your death, as is the case in probate. Trusts are more expensive to draft than wills.  In addition, by properly funding the trust there may be incurred expenses for retitling of assets depending on your situation.  Finally, there may also be fees for a Trustee who is allowed a commission for managing the trust.  Please note, however, these fees are often waived and not taken if the trustee is a family member who is going to be an ultimate beneficiary of the trust.

What are the tax consequences of having a Revocable Living Trust?

During your lifetime and as long as you are the trustee and managing the trust all of the items which you place into the trust will be taxed using your social security number, therefore you will not see any change at all tax wise.  All income will be reported on your normal income tax return as it was before you set up the trust.  Also note the trust will not have an effect on estate or gift taxes as when you pass away any assets which are in the trust will be considered in your taxable estate for estate tax purposes.  However proper planning with your Revocable Living Trust will allow you to minimize your estate taxes especially between a married couple taking advantage of the exemptions allowed by law.

If I want to change or revoke the Revocable Living Trust, how do I go about doing this?

Generally, to amend or change your Revocable Living Trust or to revoke it you must have proper papers prepared to reflect any changes.  If you decide that you want to change or revoke your trust you should get in touch with your attorney in order to make the changes or to properly revoke it.

What happens to my Revocable Living Trust upon my death?

Upon your death your trust will become irrevocable and is no longer able to be amended or changed.  All of the assets that were in your trust will still be considered in your estate for tax purposes and the Trustee or Successor Trustee if you were still the Trustee at the time of your death will then take over duties and distribute the assets according to your particular estate plan.  Please note the Trustee may also be responsible for some miscellaneous tasks such as insuring that a final tax return in prepared and upon distribution of the trust that a final accounting has been done.  It is a good idea for the Trustee at the time to contact your attorney to ensure that all things are properly concluded at your death.

If I have a Revocable Living Trust do I still need other estate planning documents?

The Revocable Living Trust is only a part of your estate plan.  You will still need a will, which is generally a Pour Over Will which acts as a safety net to pour anything that was not properly titled into the trust.  Also, a Power of Attorney is still very important document as it allows continued planning if you become incapacitated.  It will also allow for the Power of Attorney to continue to fund the trust if it is only partially funding when you become incapacitated.  Finally documents for health care decision such as the Health Care Power of Attorney and/or the Living Will are still important documents, as they are needed in to handle your health care type decisions.