TRUSTS FOR ESTATE PLANNING
It is a common misconception that only the rich and powerful have trusts. In reality, many different types of people do. (We actually use trusts in about 95% of the estate plans we create!) We frequently suggest trusts because they safeguard the money you leave for your loved ones.
So, what exactly is a trust? A trust is a legal structure that you set up to manage your assets. In the context of estate planning, they are often used to control and distribute your assets after you pass away - although sometimes they are used to control your assets while you are alive. When you create a trust, you will define the distribution terms for your beneficiaries of your trust and you will also name the trustee. This person will carry out your intentions regarding the trust property and will manage those assets when you pass away.
4 REASONS YOU SHOULD CONSIDER A TRUST
Even if you already have a will, a trust can be a great addition to your estate plan. A trust offers many protections and benefits that a will does not.
A trust can help you avoid the lengthy, costly, and public probate process. In a will-based estate plan, going through the probate process is required. Probate is the legal process of transferring assets from the estate of a person who has died to their beneficiaries (those persons named in their will to receive their assets, or those that are defined as heirs by the laws of the State).Going through probate court makes the nature of your assets, your debts and your wishes public record. A trust can protect your family's privacy and eliminate the costs of probate.
A trust offers protection from creditors. Going through the probate process leaves your assets exposed to creditors. A trust prevents that from happening. If you're concerned about accumulating a lot of medical bills in your last years of life, a trust may be a good option.
A trust can help you avoid income and estate taxes. Many Ohioans fail to recognize the amount of tax that can be taken out of their estate when they pass away. There is potentially income tax on your retirement accounts, capital gains tax on the value of your real estate, investments, etc. Throw in your bank accounts and in some circumstances, your life insurance, and it can add up to a lot. In some instances, a carefully crafted estate plan involving certain types of trusts can reduce and potentially eliminate taxes. Without proper tax planning, as much as 40% of your assets could be taken by the government when you die, leaving little for your beneficiaries.
A trust protects the funds you leave for your children. Trusts are especially important when you want to pass funds down to minor children. If you rely solely on a will, the guardian of your minor children will need court approval for expenditures until your child turns 18. This can cause unfortunate delays and costs. As importantly, if the funds are left to your child in a guardianship, the funds will become theirs at the age of 18. Leaving those funds to your child in a trust allows you to direct that those funds do not get turned over to their ownership until later in life – an age or time that you choose. This allows for greater protection from their mis-management of the assets, and protection from potential exposure to loss in a divorce.
PROTECT YOUR FAMILY AND YOUR ASSETS
DO I NEED A LAWYER TO CREATE A TRUST?
While it is possible to create a trust on your own, you risk using incorrect legal jargon and leaving your wishes unclear. When that happens, it can lead to family disputes, which can ultimately culminate in a lengthy and costly legal battle. There are many different types of trusts and many complex legal rules that apply to them. It's always best to have an experienced lawyer help you. The Trust Attorneys at The Law Offices of DuPont and Blumenstiel can help you choose the right type of trust for your needs, draft the trust according to Ohio law, and help you name a trustee.
TYPES OF TRUSTS
There are many different types of trusts, but most of them fall into two categories: revocable and irrevocable.
REVOCABLE TRUST (ALSO KNOWN AS A LIVING TRUST)
A living trust is a type of trust that can be changed throughout your lifetime. They are appropriate for people that have a complicated asset structure. For example, if you have multiple investment accounts, multiple business interests, and/or have property in different states, a living trust could benefit you.
Having a revocable living trust ensures that it is easy for your family to access your assets when you pass away or become incapacitated. By making your wishes clear, you avoid family conflict.
One mistake many people make with a living trust is failing to properly fund it. To fund a living trust, you must transfer the ownership of your home, real estate, and bank accounts to the trust. You will also typically list the trust as the beneficiary of your retirement accounts. We understand that this can seem scary, and you may feel like you are losing control of your assets. However, this couldn't be further from the truth. When you create a revocable trust, you retain the right to take your assets out, change who the trustees are, and change the distribution to your beneficiaries.
A living trust can be amended by the creators of the trust simply by signing a declaration that states they are making changes to the trust. That declaration needs to be appropriately witnessed and should be notarized.
An irrevocable trust is a type of trust that cannot be changed. This type of trust is appropriate for people that want to leave money to their beneficiaries, but do not want to leave it vulnerable to the government or creditors.
An irrevocable trust involves a sort of trade-off. You give up control over, and ownership of, the assets you put into it. However, by doing that, you also gain protection from future creditors and reduce your exposure to estate taxes.
An irrevocable trust can be beneficial for people who are worried about long-term care costs as they grow older. This includes the cost of nursing home care and medical costs.
SPECIALIZED TYPES OF TRUSTS
There are many more types of trusts that fit unique and specific needs. For example,
A special needs trust can make sure your special needs children are properly cared for when you pass away.
A charitable remainder trust can help you reap tax benefits from charitable giving.
A Medicaid trust can protect your assets from the exorbitant cost of long-term care, including nursing home costs.
A children's trust allows you to establish certain safeguards so that your child doesn't spend their inheritance irresponsibly. The trustee will act as a gatekeeper in this instance. You can also list requirements that your child must meet to receive their funds, such as graduating from college.
HOW DO I PICK A TRUSTEE?
One of the most important decisions you will make when creating a trust is who to name as trustee. The trustee is responsible for overseeing the trust, making sure that the terms of the trust are followed, and distributing the assets to the beneficiaries.
Many people select a trusted family member or friend to be their trustee. This person should have a similar belief structure to you regarding how assets should be managed and the exercise of discretion in making distributions to the beneficiaries. You can also appoint a professional trustee. A professional trustee is someone who has experience managing trusts and can handle the administrative responsibilities associated with them. This can be especially helpful if you live far away from your beneficiaries or if you are concerned about family conflict. If you would like more information on trusts and their uses in estate planning, please call our law office at 614-389-9711. We would be happy to answer any of your questions and help you get started on creating a trust that is right for you and your family.
How does a trust fit in with the rest of your estate plan? Check out our Consumer's Guide to Estate Planning in Ohio here.
GREGORY S. DUPONT, TRUST ATTORNEY
Greg DuPont, JD, CFP®, is a well-respected estate attorney, financial advisor, public speaker, and published author. He has been serving clients as an estate and tax planning attorney since graduating from Capital University Law School in 1992 and added a wealth component to his practice over 15 years ago. He designed his firm to be the place where finance and law meet. He has been named one of Ohio’s Top 100 lawyers and was also recently named an Ohio Super Lawyer. Greg has been featured on WTVN radio and WCMH television. He is a life-long resident of Central Ohio and resides in Hilliard with his wife, Julia, and his daughter, Sophie.