REVOCABLE LIVING TRUST
This article is for people who already have a revocable trust. Now that the federal estate tax exemption is five million dollars and the Ohio Estate Tax is due to expire, people may say, “Why do I still need a trust?” Others have not looked at their trust for ten years and have no idea what it states. The new exemption amount may eliminate federal estate tax but your old unrevised trust could cause you serious new problems.
Most trusts created within the last fifteen years are structured to take advantage of the federal estate tax exemption. Today, the standard A-B trust formulas can cause serious distribution problems at the first death. The surviving spouse may be required to create another trust at your death that is not necessary today. This is an expensive surprise that could be avoided with a review of the trust while you are both alive.
OTHER AREAS OF NECESSARY REVIEW:
You are probably your own trustee but who is next in line? Many trusts only have the grantor as the trustee. In a normal setting, I feel it is best to have both spouses as trustees of each other’s trust. Each may act independently. This allows your wife to handle the day-to-day business affairs of your trust account.
If the trust was created a long time ago, you may have your brother or father as the successor trustee. This was done when your children were small. Now that they are in their twenties, maybe they should be the successor trustees since they will inherit the assets anyway. Rules created for small children are no longer necessary. It may now be necessary to create provisions to protect the assets from the legal headaches of your children.
There are many non-tax reasons to have a trust. Owning real estate in more than one county or state is a major reason for a trust. If the trust is the titleholder, then you will not need a probate administration in every state. People initially place the real estate into their trust but then buy more real estate in another state. Once you have a trust you must continue to title the real estate and all other assets in the trust. Some individuals never do fund (place the title in the trust) their trust and any asset not properly titled will guarantee an expensive and time-consuming probate administration.
Normally, each spouse has a trust. It is important to review what assets are in each trust. What was correct ten years ago might not be correct now. With age and health problems, it may be time to alter the trust ownership and place different assets into each trust. It may be time to remove an asset from the trust and re-title the asset to protect from nursing home liability. This was not considered when the trust was created years ago.
You executed your trust in one state and now you are a resident of another. Each state has its own rules and language. Your trust may be subject to the laws of your initial state of residency. This could cause a tax problem if you have changed residency to another state. More importantly, special language required by a state to be in a trust could be missing in your trust. This is true with trusts created in Ohio and now subject to the laws of Florida.
A simple review can easily solve the problems listed above. This is only a partial list. Many individuals just simply leave their documents on the shelf and anticipate that all will be well. When you created the trust, you created a document that will totally control your assets and their distribution at your death. With the execution comes the responsibility to keep the document current and compliant with tax laws and your family’s station in life. A periodic review will make the final administration correct and easy for the surviving spouse and your children.
Jeff Roth is a partner with Forrest Bacon and David Bacon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky and Marion, Ohio. Mr. Roth is also licensed and practices in Florida. His practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright@Jeffrey P. Roth 2009.
A revocable trust is a very basic planning tool created by many families. The purpose of a revocable trust is to avoid the time and inconvenience of a probate administration at your death. It may also eliminate estate tax.
The problem is that people execute the trust but fail to place title to all of their assets into the trust. This process is called the “funding “of your trust. It is the act of transferring the legal title of an asset from your individual name into the trust name with you holding the title as trustee of your trust. Failing to fund the trust defeats one of the main purposes of creating a revocable trust. Some attorneys prepare the trust but do not assist you in getting all of your assets properly placed in the trust. As part of the estate plan, your attorney should provide the knowledge and paperwork to fully fund your trust.
A normal title to an asset titled in a trust is as follows:
Robert Smith and Barbara Smith, Trustees or their successors in Trust, under the Robert Smith Living Trust, dated March 15, 2009, and any amendments thereto
By the terms of the trust, either person may act in behalf of the trust. In the event of your death, the title is still in the name of the trust which did not die. Now your child as a named successor trustee can immediately transfer the asset pursuant to your instructions set forth in your trust document. If the asset had remained in your sole name, your children would have to go through the probate process to make a valid transfer. Time spent by you while alive can save a lot of time and money for your children after your death.
There are basically three types of property that need to be retiled.
1. ACTUAL CHANGE OF OWNERSHIP OR TITLE
This requires actually preparing new documents to retitle the asset into the trust.
Examples of this are:
1) Real estate Deeds
2) Bank accounts, Brokerage accounts
3) Stocks and bond certificates
4) Motor vehicle titles
2. CHANGE OF BENEFICIARY
This requires getting forms from the asset holder to list a primary and a secondary beneficiary. These assets are not held in the trust but the beneficiaries must be correct. Examples of this are:
1) IRA’s. 401K’s, 403’s, health savings accounts
2) Life insurance policies
3. ASSIGNMENT OF OWNERSHIP RIGHTS
There are many assets that do not have actual stated title. The proof of ownership in a trust is evidenced by an assignment form indicating that the asset is held in the trust. Examples of this are:
1) Tangible personal property, i.e. Jewelry, household furnishing, etc.
2) Partnership interest, LLC interest, cooperative interest,
3) Personal loan and mortgages that you hold for others.
In the process of transferring the interest, a bank may ask to see the trust. They want to know that a trust exists and when it was executed. They also want to know who the trustees are and that they have the power to sign and control the asset. Normally you have signed an affidavit of trust that sets forth these facts. Each institution has different rules and often you can have difficulty changing the title. This is where legal counsel can assist to complete the transfer.
Sometimes transferring out of state property is best handled by contacting the correct entity in the other state. A timeshare would be an example of an out of state transfer. Government bonds are best handled by working with your bank that has the necessary forms.
The goal of the attorney is to transfer all of your assets into the trust. It is frustrating, time consuming and expensive to open a probate estate for one or two items that were not properly placed in the trust. People will say that the old truck out back isn’t worth much. Value is irrelevant. If it has a title, it must be placed into the trust while you are alive to avoid the time consuming filing of a probate estate.
The next issue is the continuing duty to see that all future assets that are purchased are also placed in the trust. If you buy a new car or open a new bank account, you must remember to title the asset in the trust.
If you currently have a trust, you should review the title to all assets and see that they are properly titled. A good time for this process is at tax time. Look at the 1099s to see that they indicate that a trustee holds the title. By doing this, you can save your family a lot of time and aggravation at your death.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon and Jeff Roth are partners in Roth and Bacon Attorneys with offices in Upper Sandusky, Marion, and Port Clinton, Ohio. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred fifty two of a series of articles. Additional articles will be published in the future. If you have any questions you would like to have answered, please direct your question to The Daily Chief Union and your question will be considered for use as the topic of subsequent articles. Copyright @ David F. Bacon 2009
In past articles we have discussed some of the foundation blocks of creating trusts. Primarily we have explored revocable trusts. A revocable trust (sometimes referred to as a living trust) is generally a trust over which the Grantor (person making the trust) has relinquished no control. The grantor may freely transfer assets into the trust during his lifetime and may also remove the assets from the trust. The grantor may amend or terminate the trust at will. If a grantor wishes, a revocable trust during the lifetime of the grantor may carry the grantor’s social security number for tax identification purposes. There are usually no tax consequences when a grantor transfers assets into a revocable trust which he or she controls.
As there are generally no transfer tax consequences to the grantor in transferring assets into a revocable trust as the grantor continues to retain complete control of any asset placed into a revocable trust, the grantor usually has achieved no protection against his present or future creditors. A creditor of the grantor may in most instances collect against any assets the grantor has placed into a revocable trust which the grantor controls.
In addition, placing assets into a revocable trust does nothing to remove the asset from the estate of the grantor for Medicaid eligibility purposes. If a person wishes to become eligible for Medicaid assistance, all assets placed into any revocable trust must be divulged and counted as countable assets for Medicaid eligibility purposes as would any other assets the person had available to him or her.
Accordingly for many applications such as creditor avoidance and or Medicaid eligibility, revocable (living) trusts accomplish very little. The primary purpose of revocable trust planning is the avoidance of probate intervention during disability and after death. By placing assets into revocable trusts, a grantor transfers the titles of the assets to the revocable trust. The grantor maintains control of the assets in the trust and of the trust itself. However, by placing the titles to the assets he owns into a revocable trust, he makes those assets become titled trust assets. In Ohio trust assets are not generally subject to primary probate jurisdiction during the grantor’s disability or after the grantor’s death.
Now that we have defined what a revocable trust is, let’s turn our attention to what an “ir”-revocable trust is.
In short, an irrevocable trust is in format very similar to a revocable trust. Both entities have Grantors (persons placing assets into the trust). Both entities have Trustees (persons legally entitled to manage the trust assets during the term of the trust according to the applicable law and rules of the trust) and both entities have beneficiaries (persons who benefit from the trust during its existence and after its termination).
As stated, in a revocable trust the grantor loses no control of the asset by placing the title to the asset into the trust. The grantor may in a revocable trust may call the title to the assets back out of the trust and retitle those assets into his or her name individually or any other person’s name free of the trust.
In an irrevocable trust the grantor’s ability to completely control the asset after it is placed into the trust is oftentimes wholly or partially lost. When an asset is titled into an irrevocable trust, the grantor’s ability to thereafter control that asset and its subsequent distribution is greatly diminished and in many cases non-existent.
Since the grantor has lost control of the asset by placing it into an irrevocable trust, there may be and oftentimes is a transfer tax consequence to the grantor resulting from the grantor causing the asset to pass from his name into an irrevocable trust which the grantor no longer completely controls. If the transfer to the irrevocable trust was accomplished by a sale from the grantor to the trust, then the grantor may have a capital gains income tax to pay on the appreciation of the asset during the time which he or she held title to the asset in his or her own name.
If the grantor “gave” the asset to the trust (transferred for no value received or less than fair market value of the asset on the date of transfer) the grantor may either have to pay gift tax on the transfer or use part of his or her lifetime exemption of $1,000,000 available against the gift tax to avoid paying the tax.
In many cases irrevocable trusts involve persons (primarily beneficiaries) who are not grantors of the trust. In those cases the grantor may establish the irrevocable trust during his or her lifetime or upon death. Oftentimes revocable trusts which grantors establish during their lifetimes, become irrevocable trusts after the death of the grantor.
In this type of situation a beneficiary may find that he or she has certain abilities to enjoy the benefits of an irrevocable trust during their lifetime (i.e. income from the trust, certain limited or defined abilities to receive portions of the principal of the trust). However, these beneficiaries may discover that they have no ownership of the trust assets and may never be entitled to receive the assets from the trust in their own name. These beneficiaries may or may not be granted the right to name the persons they desire to become beneficiaries of the trust after their death.
As I have said and written many times before, it’s all about control, who controls the assets and who will have the ability to control the assets in the future. Irrevocable trusts are just one of many important planning tools which enable those planning their estates to maintain control of their assets during their lifetimes and after their death.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon, Jeff Roth, and Jessica Moon are members in Roth & Bacon Attorneys, LLC with offices in Upper Sandusky, Marion, and Port Clinton, Ohio and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ David F. Bacon 2007
When it comes to estate planning, we each have our job and duties to complete a valuable estate plan. I thought I might list areas in which the attorney and the client each have to concentrate on to produce a quality end product.
THE ATTORNEY
When it comes to the attorney, here are areas of concern and action:
1. FACTS, CONCERNS AND TRUTH DETECTING. Anyone can prepare documents. It is the job of the attorney to learn as much about the family unit as possible. We must look through the niceties to determine just how the family relates to each other. We must look into future generations to determine if they can continue the business or it should be sold. We must glean from your conversations, your values, your desires, and how each member of the family fit into the family puzzle. The more we learn about you, the more we can design a plan to protect you, your assets and your future generations.
2. PLANNING AND DRAFTING. After we have a sense of your goals, it is our job to create an estate plan that will obtain those goals. We may suggest limited liability companies, partnerships or other estate planning vehicles that you have not considered. These entities will protect your assets and allow multiple ownership among siblings or in more than one generation.
The attorney then must prepare the documents that will accomplish all of the above. We cannot allow short cuts. The purpose of many pages is to provide protection against future laws or problems that you may not be aware.
3. EDUCATION. It is the job of the attorney to educate the client so that he or she fully understands what they are signing and what the documents will accomplish. There are no dumb questions and the attorney must be thorough in his explanation.
4. FUNDING AND THE FUTURE. First, the attorney should assist the client in allocating the assets between the trust of the husband and the trust of the wife. This is one of the most important aspects of a good estate plan. The attorney must understand the income tax consequences of placing an asset in one trust or the other. Equality of valuation is essential for the best income and estate tax minimization.
Funding of the trust is a very important part of the process. This is work, but the attorney needs to assist and monitor the process and verify that all assets have made their way into the trust. Why have a trust, if you have to go through the probate process when you die. Many law firms drop the ball on this subject and give the client a letter on how to fund assets and close the file. They leave this funding process up to the client who may or may not complete the process properly.
THE CLIENT
1. It is the job of the client to first contact the attorney and then to give the attorney all of the facts needed to complete the estate plan. The client must trust the attorney and divulge all of his assets. He must also alert the attorney as to any family problems that need planning attention. The attorney can usually protect the asset and the child, if he is made aware of the problem. If the son has a high potential for a divorce in the near future, then the attorney should be made aware and plan around this problem. If a child has financial problems then giving assets outright to him without a way to protect the assets is just giving your assets away to his creditors.
2. Your job is also to assist in the planning process and take charge of funding into the trust. You must go the extra mile to secure the change of title so that your children will have an easy time transferring to the next generation.
3. After the trust is completed and funded, it is the job of the client to keep the trust up to date. Life goes on, people get older, get divorced, make bad decisions and the provisions made today are wrong tomorrow. Keep track of named beneficiaries and update when people’s events dictate the necessity. Your favorite charity may change or you may now be in a position to remember them. Talking about it will not get it done.
4. As part of the planning process, you should have executed health care power of attorneys, living wills and durable power of attorneys. These also should be updated. In 2003, The Health Insurance Portability and Accountability Act (HIPAA) was implemented. This is the law that prevents banks and hospitals from divulging any information about you unless you have authorized it in writing. If the powers that you currently have do not have this provision within the documents, you may find that the institutions will not speak to the people you have otherwise authorized.
5. The Trust code changed dramatically in 2006. The documents you now have may not contain the proper language to accomplish your wishes.
6. You must update and stay current both as to the law and as to your personal circumstances. It is sad to see bad and unintended consequences because of the lack of updating and staying current. Take a moment to review.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon and Jeff Roth are partners in Roth and Bacon Attorneys with offices in Upper Sandusky, Marion, and Port Clinton, Ohio. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred fifty two of a series of articles. Additional articles will be published in the future. If you have any questions you would like to have answered, please direct your question to The Daily Chief Union and your question will be considered for use as the topic of subsequent articles. Copyright @ David F. Bacon 2009
Your dad died and you have been named the executor or the trustee. What is your job? You are a fiduciary. You are responsible for taking care of something that belongs to someone else. Your dad provided a document that sets forth your guidelines. It is your job to follow his directions and have a loyalty to all beneficiaries to protect and distribute in accordance with the document and the law.
State statutes further govern your duty to pay all legal obligations and sell or distribute to the correct beneficiaries exactly as the document dictates. You have discretion, if given in the document, but you must always act for the benefit and protection of the beneficiary and not any personal gain. As a beneficiary, you will receive your stated share but you cannot take any action that would favor your personal position over the rights of the other named beneficiaries. That fiduciary duty protects others to insure proper distribution under the law. Your authority should be clearly stated in the instrument or in the State statutes. You must always act in a prudent manner. You cannot place one hundred thousand dollars in a noninterest bearing account. Even though today the rates are minimal, you must work to have all assets gain in value for the benefit of the beneficiaries.
A trustee must protect and preserve all assets. He must sell or distribute in a timely manner. He also must follow the prudent investor rule. If there is a large stock portfolio, he must sell and convert the stock to cash if there is any volatility with the stock. If the trustee fails to act and the stock declines sharply in value without action on his part, he could be held personally liable for his inaction by the other beneficiaries. The trustee must investigate and locate all assets. If he finds an old insurance policy, he has a duty to check with the company to see if it is active. Many policies go unclaimed because no one took the time to determine if it still has value. If the trustee finds any old passbooks or signs of activity at any bank he should take the time to determine if it has been completely closed.
The trustee/executor must also maintain accurate records and account for all assets and any income derived from these assets. Prior to closing the trust, he has a duty to provide a written accounting to all beneficiaries so that they know that all of the assets are accounted for and distributed.
The trustee or executor must also insure that all past and present taxes are fully paid. He must file a final personal income tax return and a fiduciary income tax return for the time from the death of his father until the final distribution.
Most of this is common sense but if the trustee does not do his job, he stands the chance of being personally liable for his misdeeds or lack of performing his duties as a fiduciary. There are many more duties as trustee that will be discussed in future articles.
Jeff Roth is a Member of the firm ROTH and BACON Attorneys, LLC with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in Ohio and Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to provide information to the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2013.
DO I NEED TO REVIEW
MY TRUST?
FUNDING A REVOCABLE TRUST
IRREVOCABLE TRUSTS
MY JOB, YOUR JOB
SUCCESSOR TRUSTEE / EXECUTOR DUTIES
The purpose of this site is not to provide personal legal advice. This information is general and is not a substitute for individual legal services. Roth and Bacon Attorneys, LLC encourages you to obtain estate planning services and advice from an attorney, CPA, or other qualified individual.