Estate Planning Part 4- Trusts

In Estate Planning Part 1, we talked about how to avoid the probate process on an asset-by-asset basis. Sometimes, it makes more sense to use a trust to accomplish the same goal. However, trusts can be expensive and usually it’s less costly to consider the route in Estate Planning Part 1.  

                       

Generally speaking, in Ohio, there are five times when trusts are recommended as the best way to achieve your estate planning goals: to avoid Medicaid, to avoid the federal estate tax, to plan for special needs adult and minor children, to maximize benefits, and to attach strings from the grave. There are other reasons that you might consider a trust depending on your particular family situation, for more information, please seek the advice of an estate planning attorney.

The first reason to get a trust is to avoid Medicaid. Medicaid has a five year look-back period for asset transfers. So, if you want to protect your asset from Medicaid, you will need to transfer it into an irrevocable trust five years before you need Medicaid assistance. This takes some planning well in advance of going on the Medicaid system. Some pitfalls to an irrevocable trust in this case include loss of control. An irrevocable trust, to be truly irrevocable, must be completely out of your hands. That is, you would have to appoint some other person to control the assets once you transfer them into the trust. Essentially, it’s as though you have already given these assets to your beneficiaries well before your death. These assets, however, would be protected from Medicaid reimbursement and saved for your loved ones.

The second reason is to avoid the federal estate tax. The State of Ohio abolished their estate tax on January 1^st, 2013. The only estate tax for Ohio estates that remains is the federal estate tax. To qualify for that estate tax, you must have Five Million Dollars or more in assets. If you are below that mark, you need not worry about the estate tax. This type of trust may be revocable or irrevocable. So you would still be able to control the assets all the way up until the time of death.

The third reason to get a trust is to plan for special needs adult or minor children. To qualify for state programs that will assist these children, they can only have a limited dollar amount disbursed for their use periodically. A trust can be set up to benefit them over a long period of time and ensure that they get maximum state help and maximum spending money under those state programs.

The fourth reason is to maximize your benefits. Some benefit programs pay more money to those with less assets or income. To maximize your benefits, you can place your assets into an irrevocable trust to shield them from being counted as owned by you (and sometimes you can use a revocable trust in these instances which will allow you to control the asset).

The final reason to consider a trust is to attach strings from the grave. In the event that your beneficiaries’ lives would be ruined from having too much money at one time, or if you want to provide for your family over a long period after your death, a trust can be created that will make periodic payments to them over a long period of time.

Of course, trusts are expensive to make and administer of a long period of time, which is why it is often-times better to use an alternative estate planning method explained in my first article.

-Attorney Michael Wagner 

Estate Planning Part 3- The Probate Process

In the event that you forgot to make an asset non-probate, and you must rely on either the will or the statute, you or your family may have to face the probate process in Ohio. This article is designed to explain what that process is for estates (when someone dies) and what to expect.

After someone dies, and if they have probate assets (all assets unless specifically made non-probate), their stuff will have to go through the probate process. When this happens, whether there is a will or not, someone will have to take the will to the probate court and fill out a number of forms in order to open the estate. If there is a will, the person to do this should be the executor. If there is no will, anybody could apply to administer the estate and be appointed as administrator.

At this point in time, all of the people with an interest in the estate will be notified that the application for appointment has been filed. Provided that all of the people with an interest in the estate sign a waiver form, the applicant will most likely be approved by the court and a ghost hearing will be set where the court approves the applicant. If there is a will, the people with an interest in the estate will also be asked to sign a waiver to contest the will. As long as they all agree that this was the dead person’s last wishes and the dead person was competent when they signed the will, the court will most likely approve the will. If someone disagrees with the applicant, or disagrees with the will, a hearing will be set on those issues.

Once an administrator/executor is appointed and/or the will is accepted by the court, the next phase of an estate is the inventory. The administrator/executor will have to list all of the important assets that need to be handled in the estate. This list will be given to all of the beneficiaries (if no will, the beneficiaries are determined by the statute of decent and distribution, otherwise they are laid out in the will). If the beneficiaries agree that all of the things the dead person owned are listed, then they have the option to waive again- this is just a waiver to contest the inventory. If they disagree, another hearing will be set.

After the inventory, the assets will either be divided up amongst the beneficiaries according to the statute or the will, or the assets may have to be liquidated. Creditors will be given the opportunity to attack the estate and if they file their claim timely, they will have to be paid before the beneficiaries are able to obtain their portion. Assets will have to be liquidated to fulfill the creditor’s claims. Once a plan is created for dividing the assets, liquidation, payment of creditors, and distribution to the beneficiaries, the administrator/executor will report this to the court in the final phase: the final accounting. Again, the beneficiaries will have an opportunity to either waive (meaning they agree with the plan) or be heard at a hearing.

Eventually, a final accounting will be accepted by the court and the estate will come to a close. Generally this process can take between 3 months to 4 years (typically, though, estates should close within 9 months) and become very costly in expenses of the administration, which is why it is important to plan your estate and make your assets non-probate.

-Attorney Michael Wagner 

Estate Planning Part 2- Wills

(Continuation of Estate Planning Part 1)

In my last article, we talked about how to avoid probate on an asset-by-asset basis in Ohio. In this article, we will talk about the safety net in the event that there are any assets that you forgot. This safety net is the will. Many people believe that wills give immediate power to the executor to handle all of the assets after death. This is not true. Wills are only a directive to the probate court and in order for the executor to gain authority to act as executor, the will must be taken to the probate court and the powers of executor must be conferred by the court.

Even if you make all of your assets non-probate (and if they are, they are not subject to the probate court or the will), it is important to still have a will just in case you forgot about an asset or in the event that you want to avoid the statute of decent and distribution. In Ohio, it is this statute that dictates to the court how to distribute your assets. The only thing that can trump the statute in directing the court is the will (trusts can as well, but that will be another article). The statute dictates, in general, that all of your stuff goes to the surviving spouse (and sometimes minor children of the spouse); if there is no spouse, then it goes to the children; if there are no children, then their children; if there are no descendants, then to your parents; if they aren’t around, then their children (your brothers and sisters); then their children; if none of those people are around, it goes back a generation; and then by another generation; and if none of these people exist, then the statute makes allowance for step children; and if they don’t even exist, then all of your stuff will go to the State of Ohio.

Even if you are okay with this plan, it’s still important to have a will to name the executor- the person given the power to distribute the assets. In the will, you can go against the statute and name specific people to have your assets (your beneficiaries). These people could be friends and not necessarily blood relatives. You can disinherit people under the will.

One of the most important times to have a will is after having children. In the will, you can name someone to be guardian over the minor children in the event that you or you and your spouse die. This is important because often times, when both parents die, the court is faced with two sets of grandparents who are equally qualified to have the children. It’s heartbreaking for the kids to watch family members fight over them.

Even with a good plan for the future, you’ll want to make sure your stuff, even the stuff you forgot, is in good hands, so it’s always important to get a will so your final wishes can be heard.

-Attorney Michael Wagner

Estate Planning Part 1- Avoiding Probate

(This content was featured on our newsletter 5/1/2016)

In Ohio, when done correctly, tailor-made estate planning can help your family save thousands of dollars and one way to achieve that is to avoid the probate process. Probate law is an area of law designed to help people who cannot speak for themselves. This includes guardianships of adults and children and also decedents (a nice way to say dead people). Probate law assumes that all assets are probate assets unless a clear intent exists to make the asset non-probate. When your assets enter the probate process, your estate will be subjected to court costs, attorney fees, attack by creditors, and a myriad of other expenses. One way to avoid this headache for your loved ones is to make all of your assets non-probate. Of course, everyone has heard of the wonders of a trust, an entity that can become the owner of all of your assets. While trusts do avoid the probate process, they can be expensive and may not be the right solution for your family. There are five times that trusts become the cheapest, clearest, and most recommended route and that topic will be left to another article.

For most people, the best route to avoid probate is to make your assets non-probate on an a-la-carte basis. All of your stuff can have a designated beneficiary listed on it somehow and this is how we make it non-probate. For real estate, you can get a Transfer on Death Designation Affidavit to list who you want to have your property when you die. This document simply needs to be recorded at the local recorder’s office before you die, to be effective. Alternatively, you can get a Joint Survivorship Deed listing off who will get your half of the property when you die. Be wary of this Deed, though, if you have an active mortgage, and you change title using this deed, then the acceleration clause in the mortgage might be activated making the balance due immediately. Another pitfall of the Deed route is that the other person immediately owns half of your property which means their creditors can attack it.

Similar rules apply to bank accounts. You can talk to your bank’s teller, and ask to make your accounts “payable on death.” This designation allows you to list who gets the account next. Alternatively, you can make the account joint but the same creditor/ownership pitfalls apply here as well and the other person could clear your account at any time. For IRAs, annuities, and other investment accounts, simply ask to list your beneficiaries on the account. Stocks and bonds can be given a Transfer on Death (TOD) designation from either the company or the government (depending on if it’s a stock or a bond). They also can be made joint with the same pitfalls as the other joint assets. For cars, boats, four-wheelers and anything else with a title, you can go to the local title bureau and ask for a new title listing either a transfer on death person, or make it joint but the same pitfalls apply.

Most personal property beyond that has little to no value and the court usually doesn’t bother with it. But if you truly want to make sure that these assets remain non-probate and pass to a particular person, then the best way is to get a lock box at your local bank and designate a beneficiary on the lockbox itself. The problem here is that you must then put that item in the lock box and lock it away. For that reason, it’s always important to have a will as a back-up. Just to be safe. In any event, if you avoid probate, you save your family so much time, effort, and money. Put them before yourself and protect their future!

-Attorney Michael Wagner