Ohio residents, such as those living in Medina, North Canton, or Wooster, might consider a trust as a means of reducing the potential burden of estate taxes or to protect their assets while also avoiding the time and expenses involved in probate proceedings. The Medina, Ohio trust attorneys at the Law Office of Parker & Erb, LLC offer advice to clients about the different types of trusts and the circumstances that make one type more effective than another.
What is a Trust?
A trust is a written agreement that, if prepared and executed properly, is legally enforceable in Medina, North Canton, and Wooster, Ohio as creating an arrangement under which a person transfers or acquires assets in the name of the trust. The assets are held and administered by a third party trustee.
Trustees serve as fiduciaries. This means they owe a high degree of loyalty and trust to the creator of the trust agreement. Trustees must administer the trust according to the instructions written into the trust agreement by the creator. This includes instructions about how to dispose of or distribute the assets after the death of the maker of the trust. Trusts can be useful components in an overall estate plan along with or instead of a last will and testament.
Differences between Trusts and Wills
A last will and testament, more commonly known as a will, is a legal document in which a person appoints a representative known as an executor to carry out the document’s instructions for the distribution of the will maker’s estate after death. Unlike an executor who must be appointed by a court after the death of the maker of a will in Wooster, North Canton, or Medina, a trustee has the power to administer trust assets without seeking approval from a court or waiting for the maker to die.
Because trusts do not require a court proceeding, they help to maintain the privacy of an individual’s finances than does a will. Probate proceedings in which a judge appoints an executor are public proceedings that require the filing of the original will with the court clerk. Once filed, the will and its contents are available for viewing by the public.
Trusts in Medina, Wooster, and North Canton, Ohio, fall into two categories: Living trusts and testamentary trusts. A testamentary trust is one that is established through language in a last will and testament, but it does not become effective until the maker of the will dies and the will is offered for probate. The language in a will establishing the trust usually includes the names of a trustee and an alternate, the names of the beneficiaries of the trust, and instructions as to the money or assets to go into the trust and the conditions under which they will be distributed.
A living trust is either revocable or irrevocable. A revocable trust allows its maker to control the assets and make changes to the terms of the trust. Because of the control retained by its maker, a revocable trust cannot be used for long-term estate plans that wish to include Medicaid planning in the event the maker might require nursing home care. Revocable trusts cannot be used to establish a special needs trust for a beneficiary receiving public benefits such as Supplemental Security Income.
Irrevocable trusts are those in which the maker of the trust relinquishes all title, ownership rights, and control of the assets transferred into the trust. Changes to an irrevocable trust usually can only be made with the consent of the beneficiaries. Because the maker of an irrevocable trust gives up all rights to the property, these types of trusts can be used for Medicaid planning, to protect assets from third-party claims, and to shield life insurance proceeds from federal estate taxes upon the death of the maker of the trust.
Ohio Legacy Trust Act
Ohio now allows residents of Medina, North Canton, and Wooster to use an irrevocable trust to protect their assets from claims by creditors. The Ohio Legacy Trust Act contained in Chapter 5816 of the Ohio Revised Code allows the maker of a trust to shield assets as long as the trust in which the assets are held is irrevocable, and the trustee must be an Ohio resident.
The maker of a legacy trust is permitted to retain some powers over the trust and the assets including:
- The right to receive a distribution of principal and income from the trust
- Allowing withdrawal of up to 5 percent of the principal each year
- Veto power over asset distributions from the trust
- The ability to replace a trustee
- The right to control how trust income and principal are distributed to beneficiaries
An Ohio legacy trust will generally only protect against claims arising after the creation of the trust. Creditors with claims arising prior to the assets being acquired by or transferred to the trust might not be protected.
The Law Offices of Parker & Erb, LLC can advise a person about how a trust might help in a particular situation. They can also assist in the creation of a trust instrument that conforms to all legislative requirements so as to provide the protections and safeguards authorized by law.