Trusts

What are trusts?

Trusts are legal arrangements that usually establish directions regarding the future management and beneficiaries of specific property and assets.  The person creating the trust is called the settlor or grantor.  The trust document names the trustee who may be either the settlor or others, and who is directed to carry out the purposes described in the the trust.

Why are some trusts called “living trusts.”

Trusts may be written to contain many different purposes and restrictions.  One of the most common purposes of a trust is to manage a person’s assets while they are still living. Such trust are often referred to as a living trusts,  inter vivos trusts, or revocable trusts.  Depending on the purposes and restrictions of a trust, they may utilize a more descriptive name such as A/B trust, family trust, spousal trust, credit shelter trust, irrevocable trust, charitable trust, and life insurance (ILIT) trust.

What are the purposes of trusts?

Trusts may  be used to :

1.      Avoid probate.

2.      Care for a surviving spouse

3.      Care for minor children until they reach an age established by the trust document.

4.      Care for children and family members with disabilities and special needs.

5.      Asset preservation for persons who are financially irresponsible.

6.      Provided for management and investment of assets.

7.      Minimize estate taxes.

Will I avoid estate taxes if I use a trust?

Not necessarily.  Trusts originally developed a reputation for helping to reduce estate taxes when they were properly drafted for married couples who had combined estates large enough to be subject to estate taxes. Trusts can also help to reduce estate taxes when they are properly drafted to hold life insurance policies and qualify as a charitable trust. Whether you or your family will realize any estate tax savings depends on (1) whether you are married and if so, your combined net worth, (2) whether your trust is drafted specifically to irrevocably hold life insurance or qualify as a charitable trust, and (3) will greatly depend upon what year you, and your spouse, die.  To successfully plan to minimize estate taxes, you need to consult a knowledgeable attorney who can analize your specific estate planning needs.

Will a living trust preserve my assets if I go into a nursing home and request medicaid?

No.  Any assets that you place in your trust will be considered “countable resource” for purposes of Medicaid.

What are the advantages and disadvantages of trusts?

1.      Privacy:  The terms of a trust, and the description and value of all of the assets in a trust, are not recorded in public court house records and can only be viewed by those persons permitted by the trust document such as the trustee and the beneficiaries. A copy of a will and the list and values of the decedents probate assets (called the inventory) are recorded and can be viewed by the public, and are increasingly becoming available over the internet.  Concerning Privacy, trusts have the clear advantage over wills.

2.       Control of assets for children: When assets are left to a minor child in a will, the guardian for the child will control the assets until the child reaches age 18.  A will can delay the child’s control of the assets until age 21, if the assets are left under the supervision of an adult as custodian under the Ohio transfers to Minors act.  In order to delay the child’s control past age 21, a trust will become necessary.  Concerning control of assets past the age of 21, trusts have the clear advantage over wills.

3.      Real estate outside of Ohio:  If a second home or other real estate is in located outside of Ohio, a trust may prevent a separate probate proceeding in the other state.

4.      Speed of Transfer:  Distributions according to a will may be made as early as three months after a will is filed and copies of the will are formally given to the next of kin. While there is no similar waiting period applicable to trusts, it is not necessarily prudent for an executor or trustee to distribute assets without carefully determining if all of the decedents debts are paid, and without fulfilling all estate tax requirements. Challenges to a trust may be available for as long as two years.

5.      Lower costs:  There is a common misconception that the use of trusts clearly saves expenses. In order to compare the costs of utilizing a will verses a trust you must consider all components of cost.

The drafting of a will generally costs much less that the drafting of a trust. There are often additional costs associated in transferring assets into a Trusts after it is established.

Probate Court costs are only about $150 to $225.

Executors are entitled to fees which are set by statute, while trustees are entitled to similar fees, however, family members who serve as executors & trustees often decline to charge for their services.

At death, values will need to be established whether or not assets are in a trust.  For real estate this will often require an appraiser.

The necessity of legal assistance at death will be similar whether or not a trust is utilized.  The trust has a slight advantage because the forms required by probate will not need to be filed, however similar documentation may be necessary to properly report to trust beneficiaries.  
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