Why should I have a will?
A will permits you to:
- Nominate guardians for minor children.
- Appoint an executor and waive the purchase of an executor’s bond.
- Designate powers granted to the executor.
- Designate a plan for property distribution.
- Provide alternate beneficiaries in the event a named beneficiary, or a POD beneficiary predeceases the testator (person creating a will).
- Provide for payment of debts and allocation of estate taxes.
Should I have a Power of Attorney (POA)?
Yes, a POA permits you to designate an adult who can assist you with all of your financial affairs in the event you become unable to manage them yourself.
Should I have a Health Care Power of Attorney (HCPOA)?
Yes, a HCPOA permits you to designate an adult who can assist you with all of your medical affairs in the event you become unable to manage them yourself.
Should I have a Living Will?
A living will permits an individual to instruct their doctors not to artificially prolong their dying in the event they have been determined to be permanently unconscious, or terminal. If such a declaration is consistent with your wishes, then a living will may be appropriate for you.
Should I have a Trust?
In certain circumstances, it may be prudent to draft a trust. To determine if this is appropriate for your estate situation, please review the next section.
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 instructions contained in 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 trusts 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, special needs trust, irrevocable trust, charitable trust, and life insurance (ILIT) trust.
What are the purposes of trusts?
Trusts may be used to:
- Avoid probate.
- Care for a surviving spouse.
- Care for minor children until they reach an age established by the trust document.
- Care for children and family members with disabilities and special needs.
- Asset preservation for persons who are financially irresponsible.
- Provided for management and investment of assets.
- 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 analyze your specific estate planning needs.
Will a living trust preserve my assets if I go into a nursing home and request medicaid?
Any assets that you place in a Revocable trust will be considered “countable resource” for purposes of Medicaid. If your trust can not be changed (“Irrevocable”), and the trust assets can not be distributed back to you, you may receive the income of the trust and the assets will not be considered countable resource.
What are the advantages and disadvantages of trusts?
- 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, or as required by the Ohio Trust Code, 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.
- 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 to 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.
- 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.
- 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 decedent’s debts are paid, and without fulfilling all estate tax requirements. Challenges to a trust may be available for as long as two years.
- 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 Trust 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. Whether an estate is settled by probating a will, or through trust planning, most families will seek legal assistance to answer their questions and to guide and assist them in the settlement process. Much of the legal assistance that is provided will be similar for trust or probate estates such as the documentation necessary to properly report to beneficiaries and to the estate tax departments. One advantage of the trust is the elimination of the filings and procedures of the Probate Court. We estimate that families who have properly utilized a trust for all assets will experience an average decrease in the cost of legal assistance of 25% over the costs of an estate settled through the probate process. While this may be a modest savings for the smallest estates, a 25% savings becomes very significant for the larger estates.
What is the Ohio Trust Code?
The Ohio Trust Code “OTC” was passed by the Ohio General Assembly on May 24th, 2006 and was signed by the Governor on June 28th, 2006. The most substantial portions of the OTC became effective on January 1st 2007. In addition to sections devoted entirely to trusts, the OTC contains the Ohio Uniform Prudent Investor Act, the Uniform Principal and Income Act, Ohio Transfers to Minors Act and the Institutional Trust Funds Act. The OTC includes default rules, mandatory rules and changes some common law presumptions.
The OTC has improved and modernized administration of trusts and made Ohio more attractive for trusts. It is, however, extremely critical that you consult an OTC knowledgeable attorney who can analyze your specific trust needs.