REVOCABLE LIVING TRUSTS
A revocable trust, often referred to as a “living trust”, is a versatile estate planning instrument that can set aside wealth while still maintaining access and control. When properly set up and funded, a trust can bypass the probate of assets, maintain privacy and protect assets from creditors.
A living trust is a legal document used to plan and organize your estate. A living trust is created when you transfer your property from your individual name to the name of your trust. Once your trust is set up, you need to fund your trust and re-title your major assets (such as your home, bank accounts and stocks) into the name of the trust. For example, if your home is owned by Steven and Susan Smith, you will quit claim the deed to your home from your individual names into the “Steven and Susan Smith Living Trust dated_____, 2016” which is the official name of your trust.
The living trust designates a trustee (typically yourself as the “grantor” or “creator” of the trust) to manage the trust assets during your lifetime, with the balance payable to your beneficiaries upon your death according to the specific payout provisions set forth in the trust. Naming yourself as trustee ensures that even though your assets have been transferred into the trust, you can remain in control of your assets. You can also name a successor trustee who will manage the trust’s assets if you are unable to unwilling to do so yourself.
Another benefit of trusts is the privacy they afford. A will is recorded as a public document, but a trust is not recorded or published A key advantage of a living trust is it bypasses the probate process for assets transferred to the trust. This will save your heirs time and money and because the trust is not under the direct control of the probate court, your assets, the value of your estate, and the names of your beneficiaries will not become public record.
A living trust is designed to avoid probate, is used to safeguard financial privacy, and manage assets and business ownership interests should the owner pass away or become incapacitated.
DISTRIBUTIONS TO MINORS AND SPENDTHRIFT BENEFICIARIES
When the beneficiaries of a trust are your minor children or grandchildren, you may wish to delay inheritance until a certain age or milestone. I can include specific provisions in your trust to protect your heirs from creditors, people trying to run a scam, or an heir’s own reckless behavior. You can also include stipulations for an heir to receive their inheritance such as they graduate from college or refrain from certain behaviors like taking drugs and alcohol.
Once a child reaches the age of 18, there can be no restrictions on any property or inheritance left to them if such inheritance passed to the children through a will. However, with a living trust, you can decide when and how much money your children will receive. The trustee you select will manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to receive the inheritance.
Many parents like to use staggered distributions so that the children do not receive all the inheritance at once. What works well for many parents is a one-third (1/3) distribution at age 25, one-half (1/2) the remainder at age 30 and the remainder at age 35. This way, the children can obtain an education, work for themselves and earn a living without relying on their parents’ money.
Each child’s needs and circumstances can be accommodated with special provisions for those children who require extra money, such as a child with special health care needs or a child of a single parent.
Many parents assume that the guardian of their children named in their will has discretion when using the inheritance to care for the children. However, that is not the case. Rather, when the will is probated, the court will set up a guardianship for the children and the court will control the inheritance until the children reach age 18. Using a living trust will ensure that the guardian has complete control and will not be burdened with annual accountings and the red tape associated with documenting every expense with the court. Assets that remain in the trust are protected from the courts, irresponsible spending and even your children’s creditors.
PROTECTION OF SMALL BUSINESS OWNERSHIP INTERESTS
The general rule of Ohio law is that if a person owns an interest in a limited liability company (“LLC”) and that person dies, the ownership interest in the LLC must be transferred to the heirs though the probate court. Transferring your LLC membership interest into your trust protects the assets from court involvement. The successor trustee takes over the trust’s role as member of the LLC and ensures the smooth and continuous operation of the company. Without a trust, other members of the LLC can force a liquidation of your LLC interest and your interest as a going concern will not pass to your heirs.
Key advantages to holding property in a living trust are:
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