Mark W. Jordan Trusts and Estates Law Blog on Lawyers.com

This is the fifth of a series of articles providing helpful information on estate planning.  Please contact the estate planning professionals at The Drew Law Firm for more details on any of these topics or for any of your estate planning needs.

             
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60;      Trusts

Q:  Why are Trusts useful in estate planning?

A:  Depending on the type of Trust, you may provide a multi-level care system for yourself and your loved ones,  avoid probate, cloak your estate plan in  privacy, reduce or eliminate estate taxes, and provide for your family, business interests and charities long after you are deceased.

Q:  What are the different types of Trusts?

A:  There are two broad categories of Trusts: Revocable and Irrevocable.  As the names imply, the Grantor (person establishing the Trust) may amend or revoke the Revocable Trust as long as the Grantor is alive and competent, but the Grantor may not change the Irrevocable Trust. 

     The Revocable Trust has also been called the Credit Shelter Trust, Living Trust, Inter Vivos Trust, A/B Trust, Marital/Family Trust, Personal Trust, Grantor Trust, and many other names.  Essentially, the Grantor is creating a legal entity that will hold assets (now or in the future) subject to the Grantor’s immediate control.

     With the Irrevocable Trust the Grantor is transferring assets beyond the Grantor’s control for some tax, family, business or charitable purpose.   There are many distinct types of Irrevocable Trusts, often referred to by the anagrams listed below:

      1.      ILIT: Irrevocable Life Insurance Trust

      2.    CRT: Charitable Remainder Trust

      3.    CLT: Charitable Lead Trust

      4.    QPRT: Qualified Personal Residence Trust

      5.    QDOT: Qualified Domestic Trust

      6.    GRAT: Grantor Retained Annuity Trust

    This article will focus on the Revocable Trust, and future articles will examine the different Irrevocable Trusts.

Q:        Why is a Revocable Trust more beneficial than just having a Will?

A:        While you still need a Will to designate your Executor and a Guardian (if you have minor children), the transfer of assets takes place under a Will only at the time of your death.  With a Trust, you might transfer some assets at death, but more importantly you will do so throughout your life.  Since you have unlimited control over the Revocable Trust, you are not losing any rights by funding the Trust during your life.  The Trustee (usually yourself while living and competent) spends the income of the Trust and principal as needed for anything you wish, and for the health, maintenance, support, and education of your designated beneficiaries.  If you are disabled by a stroke or heart attack or need to go to a nursing home, the Trust will take care of you.

     Unlike the guardianship in a Will which stops at age 18, the Trust will appropriately distribute assets for your children as long as you want.  A dynasty Trust will take care of multiple generations over many decades.

     All of the assets transferred pursuant to the Will are listed in the Inventory, which is open to the public as part of the probate process.  On the other hand, any property you place in the Trust during your lifetime or by beneficiary designation remains completely private.

    If you leave assets to your spouse under your Will you avoid estate tax through the use of the unlimited marital deduction, but you do not take advantage of your estate tax exemption.  Although the federal exemption is temporarily unlimited, states such as Ohio still have a very limited exemption.  When the surviving spouse dies, the assets you willed to the spouse will be taxed in the spouse’s estate.  If instead, you took advantage of your exemption in your Trust, your spouse would be able to have the benefit of these assets without any of the exempted funds being included in the spouse’s estate.

    Instead of transferring all of your business interests to the next generation immediately upon your death through a Will, allow the Trustee to groom your successors through a gradual distribution of the company shares, LLC membership units, or partnership interests over a period of years.

     These and many other benefits are available through the proper use of a Revocable Trust.

    The early stages of estate planning are critical. If you would like to arrange an initial consultation, please contact our Cincinnati office. Our lawyers will work with you to define your goals, identify significant aspects of your unique situation, and explain your alternatives.

Our estate planning attorneys: Mark W. Jordan, Robert M. Smyth, George J. Zamary, James H. Coogan, Frederic L. Goeddel, Anthony G. Covatta, Michael D. McNeil, Nancy J. Frazier and Sybil B. Mullin.

Related practice areas: estate planning, probate and estate administration, probate litigation, charitable trusts and foundations, business succession planning, gift and estate taxation, prenuptial agreements, division of marital assets, family law, real estate, employment law, mergers and acquisitions, and medical group representation