If you believe trust agreements are only used by individuals who are wealthy, you are mistaken. Trust agreements are flexible estate planning tools that offer several advantages to a wide variety of individuals during their lifetime and after their death.
A trust agreement can be used to place conditions on how assets are distributed from the trust; avoid or reduce estate and gift taxes; shelter assets from creditors and lawsuits; protect vulnerable beneficiaries who receive governmental benefits or suffer from a gambling, drinking, drug abuse, or mental health issue; avoid the probate process; and provide income for your loved ones.
Depending on what you want to accomplish, you can choose from several different types of trust agreements. Each type has advantages and disadvantages that you must consider. Our estate planning attorneys can advise you on which type of trust agreement you should use based on your objectives and goals. Below are five of the most common types of trust agreements used by individuals in Ohio.
Revocable Living Trust
A revocable living trust is used during your lifetime to manage and protect assets. Most people name themselves as the trustee in order to retain control over the assets transferred to the trust. You can name a successor trustee to manage the assets if you become incapacitated or upon your death. Unlike a will, you can direct your trustee to continue to manage your assets after your death for the benefit of the beneficiaries instead of distributing the assets to your heirs. A revocable trust allows you to revoke or amend the trust agreement at any time during your life. A revocable living trust can be used to avoid probate.
This type of trust agreement is contained in your will and is often used for a child’s inheritance. You direct the administrator of your estate to place certain assets into a trust for the benefit of an heir. The trustee appointed in your will manages the property for the benefit of the heir in accordance with your instructions. However, we almost never use this option. It is usually far better to use a revocable living trust that provides the same protection, and costs the same as a testamentary trust, yet avoids probate and thereby saves substantial fees, delay, and publicity.
An irrevocable trust offers some advantages over a revocable trust; however, the largest disadvantage is that it is “irrevocable.” Once you transfer the assets to the trust, you cannot remove the assets except in accordance with the terms of the trust agreement. You lose control over these assets but the assets are better protected from your creditors and others. Irrevocable trusts are often used to avoid estate taxes by reducing the size of your estate. In some cases, you may be able to receive the income from the trust during your lifetime. In our office, we usually use irrevocable trusts in doing nursing home/Medicaid planning.
Special Needs Trust
Parents and others use special needs trusts for several reasons. A special needs trust can hold assets for a disabled or special needs person so the person qualifies for public benefits. The income from the trust is not paid directly to the individual but is used for his or her needs (i.e. the trust pays for special medical equipment for the person by paying the company directly for the equipment). Special needs trusts must be carefully drafted to ensure they comply with all federal and state laws.
This specialized trust agreement allows you to protect an Individual Retirement Account from creditors and bankruptcy while preserving the funds for your beneficiaries. The funds are not disbursed to the beneficiary in a lump sum; therefore, the funds in the trust continue to grow tax-free or tax-deferred.
Contact an Ohio Trust Agreement Attorney
Ohio trust agreements offer several options that are useful as part of your estate plan; however, if the trust agreement is not carefully drafted, it could result in substantial problems. The trust attorneys of Lovett & House have extensive experience drafting trustee agreements. If you have questions about trust agreements in Ohio, contact our office.