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Baron Law Cleveland - Estate Planning Attorney

Knowledge Is Power – Why Knowing The Difference Between Irrevocable And Revocable Trusts Is Critically Important.

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Cleveland, Ohio, estate planning law firm, Baron Law LLC, Cleveland, Ohio, offers the following information on the differences between a Revocable Trust and an Irrevocable Trust.  Contact Baron Law Cleveland to ask and have answered your questions on what the differences are and what would suit your needs best.

Your estate plan consists of many documents and covers a lot of bases. From protecting assets from creditors and litigants to avoiding probate where desirable, a comprehensive estate plan protects you while you’re living and provides for loved ones after death. Because estate plans are, by design, comprehensive, a lot of legal jargon is thrown around and often it’s difficult to keep track of all the nuance and detail. You can put your faith in your financial adviser or estate planning attorney and trust them completely with little or no understanding of what they’re actually doing. That certainly is an option, however, the better course is to ask questions and endeavor to remain informed as possible.  

That said, one of the most common questions posed during an initial estate planning consultation is, what is the difference between a revocable and irrevocable trust? Since trusts represent one of the most utilitarian estate planning tools, they have the ability to do many useful and advantageous things in regards to estate planning, understanding the difference is critical to providing context to advice dispensed by Ohio estate planning attorneys.  

 

  1. Revocable Trusts

Revocable trusts, commonly referred to as living trusts, are trusts that the grantor/settlor can change or cancel during their lifetime. The most significant aspect of living trusts is that the grantor usually keeps control over the assets placed in the living trust and, as such, receives no tax relief for those assets. Similarly, the grantor can also appoint themselves trustee of the living trust to dispense that control.  

To use a simple metaphor, a trust is a treasure chest. Putting assets in the chest, the trust, protects the assets from particular threats outside and establishes rules which govern what is placed inside. The major distinguishing characteristic of living trusts is that the grantor, owner of the trust, keeps control of the key that unlocks the treasure chest and can get at what’s inside.  

So, naturally, the next question after what is a revocable trust is, why would I want one? The advantages of living trusts are numerous but are highly particular to individual circumstances. An Ohio estate planning attorney is in the best position to judge what an individual’s needs are and the best ways to meet them. Generally, however, the primary advantages of using living trust are avoiding probate, directly providing for distribution of assets through trust beneficiary designations, privacy, trust inventories are not public record, and maintaining control of assets trusts during life and post-death.   

  1. Irrevocable Trusts  

Irrevocable trusts are trusts in which the grantor relinquishes all control and ownership over the trust and the assets used to fund the trust. Thus, the trust cannot be changed or canceled without the beneficiaries’ permission. Prior to trust formation, grantor can dictate whatever terms they desire to govern the trust, but after formation, those terms control independent of grantor’s wishes and desires.  

So, again, why would anyone give up control and chose irrevocable trusts? As mentioned previously, with living trusts, grantors keep the key to the treasure chest. With irrevocable trusts, however, the grantor gives the key to another, namely a trustee. Since grantor no longer has the key, grantor can no longer get what’s inside the chest. Since the assets in an irrevocable trust no longer belong to grantor, at least in the eyes of the law, this has major tax and legal implications. 

These tax and legal consequences are the primary advantages of irrevocable trusts, and what distinguishes revocable from irrevocable trusts. First, since control over trust assets is relinquished, the IRS does not consider trust assets to be in grantor’s taxable estate. Thus, estate, income, or gift taxes may be avoided or reduced in certain circumstances. Further, assets within an irrevocable trust enjoy protection from creditors and litigation. Of particular importance for seniors, assets within this type of trust are not counted as an asset for eligibility in Medicaid or other government assistance programs. A common tactic is to place a martial home, usually the largest asset, in trust. Thus, eligibility is maintained but the house can still be lived in. This sheltering of assets while still maintaining use is at the core of irrevocable trusts. Even though direct control is relinquished, grantors dictate the terms of the trust. Such terms often mandate to the trustee that such trust assets are used for the health, support, and maintenance of the grantors. Thus, grantors still get to enjoy and profit from assets but get the benefits of not, technically, owning such.  

Naturally, the question everyone asks is which one is best. Unfortunately, as with most things financial and legal, there isn’t a straight answer. Dependent on the circumstances, such as estate planning goals, family structure, available estate assets, either or both types of trusts may be advantageous to use. A Cleveland estate planning attorney is in the best position to judge what is most appropriate for a given situation.  

Regardless of which is most appropriate, the most critical part is funding your trust. Picking what type or types of trusts is best is the easy part. The hardest part, and the one most often overlooked, is properly funding a trust. More often than not, people think after creating the trust the work is done. This is patently false. A trust without proper funding isn’t worth the paper it’s printed on. If you’re asking yourself how do I fund my trust or is my trust funded, please contact an Ohio trust attorney as soon as possible. The security you though you bought with your trust is likely imaginary.   

You don’t have to be rich to protect what you’ve spent a lifetime trying to build. To find out whether a trust is right for your family, take the one-minute questionnaire at www.DoIneedaTrust.com. There are a number of different trusts available and the choices are infinite. With every scenario, careful consideration of every trust planning strategy should be considered for the maximum asset protection and tax savings. For more information, you can contact Mike Benjamin of Baron Law LLC at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Mike can also be reached at mike@baronlawcleveland.com.  

 

Helping You and Your Loved Ones Plan for the Future.

About the author: Mike E. Benjamin, Esq.  

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.   

 

Disclaimer: 

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.  

 

 

Baron Law Estate Planning Attorney

Probate Is Expensive And Time-Consuming. Here Are Ways To Avoid Probate

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Cleveland, Ohio, estate planning law firm, Baron Law LLC, Cleveland, Ohio, offers the following information on you can avoid probate when you are thinking of establishing your comprehensive estate plan.

All too often people draft a last will and testament, shove the document in a safety deposit box at the local bank, and never give it another thought. Granted, a cavalier attitude towards one’s estate plan is a bold strategy but at best it’s costing thousands of dollars down the line, at worst the will isn’t worth the paper it’s printed on and the surviving family is left the deal with a tangled mess of who gets what. A comprehensive estate plan drafted by competent counsel will cost is a little now but save you a lot later.

A last will and testament is primarily meant to memorialize instructions for the distribution of assets, obligations, and wealth when someone dies. The process in which a will is read, followed, and, if necessary, contested is called probate. This process also applies if someone dies intestate, that is, without a will, but state law is followed instead of explicit instructions given in a will. Probate isn’t a necessarily evil process but it is labor intensive and costly. Probate is a legal process undertaken in state court under the watchful gaze of the assigned probate judge. As such, probate often takes many months to complete during which court costs continue to accrue. Even after a moderate probate process, probate costs can reach as much as 10% of the gross estate. Money better spent on more pressing concerns like funeral expenses or lingering medical costs. Further, during probate, beneficiaries don’t have access to the property bequeathed to them until probate is finished, regardless of whether the will is contested or not.

Since everyone prefers to preserve the most amount of assets to leave to surviving friends and family and provide access to such assets quickly, avoiding probate whenever possible is advantageous. Below are the most common ways probate is avoided.

Beneficiary Designations

Some major assets such as life insurance policies and retirement accounts, like IRAs and 401(k)s, are inherently outside of probate due to their mandated beneficiary designations. The owner of these assets at creation is required to denote primary and contingent beneficiaries in the event of death. Thus, these assets transfer directly and immediately to listed beneficiaries without the need of court intervention.

Though not as straight forward as simple beneficiary designations, other assets such as bank accounts and non-retirement investment accounts can utilize payable-on-death or transfer-on-death beneficiary designations. To enable payable-on-death beneficiary designations for bank accounts or transfer-on-death beneficiary designations for non-retirement investment accounts, contact the relevant brokerage firm or bank and request the standardized forms. Such designations are becoming more common, as such, all major financial institutions have standardized forms available upon request. The major hurdle is actually requesting the forms, completing them properly, then returning them to the institution. Retaining a local Cleveland area estate attorney can guarantee these forms are completed timely, properly, and in the correct circumstances.

For real estate, Ohio uses transfer-on-death designation affidavits as an avenue to avoid probate. Since 2009, real estate can transfer outside of probate if an affidavit is drafted with the following:

  • It describes the property and denotes its instrument number.
  • It describes the portion of property subject to transfer.
  • It denotes whether the owner is married. If married, the spouse must sign as well.
  • It names one or more beneficiary.
  • It is signed, notarized, and filed before the death of the owner.

Beneficiary designations serve as explicit instructions regarding transfer of ownership upon death. Probate fundamentally exists to ensure a decedent’s assets go where the decedent wanted them to. So, if a decedent left explicit instructions in the form of beneficiary designations, there is little reason to subject the applicable asset to probate.

Joint Ownership

Joint property by its very nature avoids probate. Joint property, for example, joint and survivor deeds or a joint tenancy with a right of survivorship, passes to the surviving joint owners when one owner dies. The transfer occurs immediately and no probate process is undertaken in regards to the joint asset. This type of ownership is mostly commonly associated with martial homes and assets obtained during marriage. Though marriage is the most common circumstance of joint ownership, it is not exclusive.

Forming a joint ownership relationship is relatively simple in most instances, however, these methods of ownership can present issues regarding trust and control of the property. Namely, there must be mutual trust and confidence between joint owners to upkeep and manage the property. Furthermore, the rights of ownership of joint property depend on the type of joint ownership created. Depending on the type of joint ownership, the use, control, and financial and legal responsibility assigned to each joint owner can vary. Some individuals are uneasy depending upon another to take care of a significant asset. The last thing anyone wants is to get locked into ownership over something expensive with an unstable, lazy, or irresponsible co-owner.

Joint ownership in certain circumstances is practical way to avoid expensive probate costs and lengthy holds on the transfer of ownership in the event of death. There are, however, significant considerations and potential negatives as well. Concerns of concurrent ownership during life may eclipse any probate avoidance benefits down the line. A local Cleveland area estate attorney is in the best position to analyze your estate planning needs and can tell you if joint ownership is advantageous to your situation.

Trusts

Trusts are a commonly recommended estate planning vehicle which affords unparalleled estate planning flexibility. Any quick internet search will illustrate, at length, about the numerous advantages of using trusts during estate planning. Whether looking to avoid probate, control assets pre or post death, or reduce or avoid estate and inheritance taxes, trust utilization is a highly effective option that should always be investigated. Contact a local Cleveland area estate attorney to find out how trusts can benefit you and your family.

A trust, to put it simply, is a private agreement that allows a third party, a trustee, to manage the assets that are placed inside the trust for the benefit of trust beneficiaries. There are innumerable types of trusts, each with own its respective legal conventions and purposes. Within the context of this discussion, however, the critical aspect of trusts is that the assets housed within them usually avoid probate. When the owner of the trust creates the trust and properly funds it, the assets go from the owner’s taxable estate to the trust. Thus, when the owner dies, the assets are not in the owner’s estate and subject to probate. The assets in question pass via the beneficiary designations set down when the trust was created. As mentioned previously, conveyance via beneficiary designation is much simpler, quicker, and cost-effective then the probate process.

The best way to avoid probate and preserve the most amount of money and property for surviving family is situational and based upon individual need and preference. A person may want to avoid probate for Medicaid qualification reasons, privacy concerns, or just to ensure as much money as possible passes to heirs. As such, a visit with a Cleveland area estate planning attorney can the provide proper guidance and evaluation of potential estate planning strategies. An hour with an estate attorney can answer any questions you might have and set you on the path to dealing with some of life’s most critical issues.

For more information, you can contact Mike Benjamin of Baron Law LLC at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Mike can also be reached at mike@baronlawcleveland.com.

Helping You and Your Loved Ones Plan for the Future.

About the author: Mike E. Benjamin, Esq.

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.

Disclaimer:
The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.
“He who is always his own counselor will often have a fool for his client.” Old English Proverb est. circa
Estate Planning Lawyer - Daniel A Baron

Qualified Personal Residence Trusts

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Cleveland, Ohio, estate planning lawyer, Daniel A. Baron, Ohio, offers the following information on whether a Qualified Personal Residence Trust should be part of your comprehensive estate planning.

For wealthier families, a great tool to manage your future tax savings would be to transfer the liability of owning a property for which you may end up paying estate taxes on, to a Qualified Personal Residence Trust, or QPRT.

In 2017 the gift exemption was set at $5.49 million, therefore, creating a QPRT permits you to make better use of this exemption. This allows anyone with a substantial estate and the likelihood of facing future transfer taxes, the opportunity to place a residence, be it a primary home, a secondary home, lake, mountain, or ocean side getaway, in a QPRT.  Transferring of this property is a lifetime transfer of residence in exchange for a rent free use of the home for the entire term of the trust.  Should the grantor survive the term of the trust, the property can either remain in the trust for the benefit of the beneficiaries or transfer outright to the beneficiaries.  Either way, successfully establishing a QPRT reduces the gift tax or estate tax cost.

You must keep in mind that this a federal tax exemption and some states may still impose a tax on the value of the property, but it still remains a great tool to maximize your estate taxes upon your passing.

Frequently asked Questions:

  • When should I utilize a QPRT
  • What requirements need to be met to qualify a property for the QPRT tax reduction
  • Does a mortgage impact the QPRT transfer
  • Are there any tax consequences connected with a QPRT

To see whether or not a Qualified Personal Residence Trust is the right estate tax savings plan for you, contact an experienced Estate Planning lawyer. Contact Daniel A. Baron of Baron Law today at 216-573-3723 to answer any questions you may have on a QPRT or any other trust.  We welcome the opportunity to work with you recommending the best solution for your needs.

Helping You and Your Loved Ones Plan for the Future

Planning for Married Couples Using Portability and Bypass Trusts

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Planning for Married Couples Using Portability and Bypass Trusts

 As Seen Published in the Cleveland Metropolitan Bar Journal

Significant expansion of the federal estate tax exclusion has dramatically changed how estate planning professionals plan for married couples.   In 2000 when the federal estate tax exclusion was merely $675,000 and federal tax rates peaked at fifty-five percent (55%), bypass trusts or “credit shelter trusts” were a popular means of sheltering wealth to preserve assets for a surviving spouse and children.   Today however, the exclusion amount has grown to an astounding $5.49 million per-spouse which is now “portable” and can be carried over to the surviving spouse’s estate.  Thus, significant changes in recent years have compelled estate planning attorneys to consider the concept of portability versus bypass trusts.

What is a Bypass Trust?

Bypass trusts are historically an effective tool designed to minimize estate taxes by sheltering wealth into a trust.   The concept is pretty straightforward: every individual is afforded an exemption amount that permits their estate to transfer to a surviving party without suffering loss to federal estate taxes.  Conversely, before portability, married couples would lose one of these exemptions at the death of the first spouse.  At the death of the second spouse, if the value of the estate exceeded the surviving spouse’s exemption, it would be taxed at the federal estate tax rate.   For example, when the exemption amount was $675,000 in the year 2000, a person dying with $1 million in his or her estate would result in $178,750 in federal estate taxes because the remaining $325,000 over the exemption is taxed.

Married couples could avoid these tax implications by directing some of their estate to a bypass trust that would support the needs of the surviving spouse, while also sheltering that portion of the estate from unnecessary taxation. This may be accomplished by dividing the estate into two portions.  Instead of leaving the entire estate to a surviving spouse, the deceased spouse leaves assets for their children in one trust account and a separate trust account for the surviving spouse’s benefit.  Assets placed in the separate trust account for children reduce, if not eliminate, estate taxes entirely.

Advantages for Larger Estates Using Bypass Trusts

With larger estates, bypass trusts may be a better planning option when considering the financial and tax implications for married couples.  By far the greatest advantage is that appreciation of the trust assets and undistributed income will not be subject to federal estate tax upon the surviving spouse’s passing.   This is especially important for assets in the decedent’s estate that may appreciate drastically before the surviving spouse’s death.  In addition, if intergenerational planning is important, bypass trusts are likely a better option over portability because they allow for use of the generation-skipping tax exclusion of the first spouse to pass.  Portability is not available for the generation-skipping tax exemption thus, portability would simply not work.

Providing Asset Protection

Aside from the tax implications, asset protection will sometimes compel the need for establishing a bypass trust over portability.   If properly drafted, the trust creates a certain level of asset protection for children and a surviving spouse.  Coupled with credit shelter spendthrift provisions, the trust may preclude the assets from being attacked by the creditors of trust beneficiaries.  This form of asset protection is particularly important and commonly used for beneficiaries who are in a “shaky marriage” and/or who have spending issues.  While a surviving spouse may not have obvious significant creditor or litigation risks (like being a surgeon or professional athlete), creditor protection should always be on the horizon.  When compared to portability, the fact remains that estate planning using bypass trusts can remain relevant at nearly all levels of net worth if the driving reason for the trust is a non-tax concern.

Disadvantages

Bypass trusts serve an important and necessary purpose to preserve an estate against creditors and divorce.  However, for smaller estates, this protection comes with taxable consequences.   Unlike the use of portability, there is no second step-up in basis at the death of surviving spouse.   For smaller estates, this could leave beneficiaries paying a great deal in income tax upon the disposition of the asset.  Further, undistributed income of the trust can be subject to higher income tax rates than individuals.  In addition, although minimal, there may be an added annual expense of filing a trust tax return.  Finally, the use of bypass trusts will require the retitling of assets which can sometimes be tedious and relatively costly.

What is Portability?

The American Taxpayer Relief Act of 2012 has been a game changing concept when planning for married couples.   Since the Act, portability is now a permanent part of the federal estate tax system, which means each spouse’s estate tax exclusion that is unused at death is portable and can be carried over to the surviving spouse.   It has effectively doubled the exemption amount for combined assets of married couples to over $10 million.  With portability, assets are stepped up in basis at the death of the first spouse, and then are stepped up again at the death of surviving spouse.   For families with larger retirement assets, portability has proven to have several advantages.

Advantages of Portability

The biggest advantage for using portability, especially for smaller to medium estates, is the use of step-up in basis.   This is in contrast to using a bypass trust, where the assets are stepped up at the death of the first spouse, but not at the death of the second spouse.   Compared with bypass trusts, there is no need to retitle assets or divide assets into separate trust shares when using portability.    For the most part, portability is simple and can be utilized even in lieu of estate planning prior to death.

Downside to Portability

If the client’s goal is to protect assets of beneficiaries from remarriage, creditors, and/or divorce, then portability is probably not the only planning tool that should be considered.   With portability, a portion of inherited assets are subject to the surviving spouse’s present and future creditors, as well as creditors in bankruptcy and, if the surviving spouse remarries and then divorces, to ex-spouses.   Additionally, portability is not available for the generation-skipping tax exemption.    Although retitling of assets is not required, the use of portability is not automatic.   Timely estate tax returns must be filed and may require additional cost from tax professionals.

A Quick Comparison

Let’s assume Ken and Kathy have a combined net worth of $10.98 million.   Ken dies in 2016 and Kathy dies in 2026.  During this 10-year period we will assume the federal estate tax rate will be forty percent (40%) and they live in a state with no estate or income tax.

Using Portability

Ken forgoes setting up a trust and instead relies on portability. Let’s assume that over the ten-year period after Ken’s death,   the total estate grows at a modest five percent (5%) annually.  This would yield a total combined estate of $17.88 million when Kathy dies in 2026. Not taking into account inflation, Kathy’s total estate tax exclusion will be both Ken’s unused portion plus her own, totaling $10.98 million.  Consequently, the total amount subject to estate tax is $6.9 million ($17.88m – $10.98).  At a forty percent (40%) tax rate, the possible resulting federal estate tax is $2.76 million.

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Portability Chart

Using Bypass Trusts

Now let’s assume that Ken created a bypass trust which at death would become irrevocable and funded the family trust account to its maximum of $5.49 million.  When Kathy dies 10 years later, all of the appreciation within the family trust will escape estate tax.  Here, the resulting taxable estate is $3.45 million opposed to $6.9 using portability.  Kathy still maintains her $5.49 exclusion resulting in the total estate tax of $1.38 million.

estate planning and trust attorney

bypass trust chart comparing portability

In sum, portability has the benefit of simplicity and $5.49 million of a portable exemption.  For smaller estates without intergenerational or asset protection concerns, portability appears to be the better option.  On the other hand, regardless of the size of the estate, bypass trusts remain effective at all levels of net worth if the driving reason is non-tax related.    Estate planning goes well beyond the comparison of portability versus bypass trusts and careful consideration of the client’s needs should be implemented into every plan.   For more information, contact Baron Law LLC at 216-573-3723 or dan@baronlawcleveland.com

Top Reasons For Needing a Trust

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Top Reasons For Having a Trust

When creating an estate plan, the biggest mistake people make is thinking they need to be rich in order to have a trust – that is completely false.  If you’re not Warren Buffet, you may still have other non-monetary reasons for creating a trust like asset protection, control, tax savings, Medicaid planning, and/or litigation and creditor protection.   Even if your estate is worth less than $100,000, you may still be in an ideal situation to protect your nest egg and what you’ve spent a lifetime trying to build.

Although the situations of needing a trust are infinite, here are a few most common scenarios where you might benefit from creating a trust.  You can also take a one-minute trust questionnaire here, to find out more specifically whether a trust is right for you.

Second Marriages

With divorce rates over fifty percent, the most common reason for creating a trust is where an individual is in their second marriage.  In this scenario, there is nothing preventing the remaining spouse from disinheriting children from a prior marriage.  Consider this example: Husband and Wife are in their second marriage.  Wife has two kids from a prior marriage. Husband does not have kids except for step-children of current marriage.  Wife passes away and leaves everything to Husband, remainder to two kids.  Five years later, Husband meets a much younger Pamela Anderson and gets married.  Husband creates a new estate plan naming Pamela Anderson as primary beneficiary of his estate, remainder to two step-children.  Husband dies.   Pamela then creates a new estate plan, disinheriting children.

Famous Last Words, “I would never get remarried!”

As you can see, this is a very typical example of where some level of control and strategy is needed.  A trust in this example would solve the wife’s concerns entirely.  Here, Wife could have created what is known as a QTIP trust.  In a nut shell, the QTIP would give Husband income from Wife’s estate, plus five percent (5 %) of principal each year.  When Husband dies, the estate MUST be passed to children and cannot be passed to anyone else.  In essence, Wife is able to control her estate even after she’s passed.  She has also ensured her children will never be cut out of the estate, even if it were the unintentional result of Husband.  And if this were not a second marriage, a trust might still make sense for couples wanting to keep the estate within the family and avoid remarriage concerns.

Tax Savings for Children

Receiving an estate comes with taxable consequences.  Although federal estate taxes are not normally at issue, gains on an inheritance can be quite high for children resulting in higher taxes.  For example, a child receiving $100,000 in gains might be placed in a larger tax bracket of 39.9% because their inheritance placed them over the threshold.  The simple solution here is for the child to receive their inheritance over time, opposed to a lump sum. The trust itself will pay income taxes on gains and the children can enjoy a stream of payments over time.

Asset Protection

Depending on the type of trust created, a trust can protect both the creator (you) and beneficiary of trust.  The most common asset protection trust is used for children instead of the creator.  This type of trust is known as a “revocable living trust.” This type of trust gets its name because the creator can revoke, change, or modify, the trust at any time during his/her lifetime.   After the creator passes away, the estate is placed in an “irrevocable trust,” where the trust now cannot be changed.   In other words, the terms you’ve created in trust cannot be changed after you pass away.  Usually the trust maker will set forth terms that would pay children and/or beneficiaries payments over their lifetime.  So long as there is discretion given to the trustee (usually a trusted family member or attorney) the money remaining in trust cannot be attacked by creditors or litigation.  In other words, if a child ends up in a lawsuit, the trustee can cease payments to the child so that the money is protected from the lawsuit.  The same outcome would apply if the child ends up in bankruptcy or owes creditors.

Divorce

It’s well known that in a divorce, all assets are split 50/50.  It doesn’t matter whether one spouse cheated or did something horrible to the other.  Ohio courts will divide all assets accumulated during the marriage 50/50, including an inheritance.  So, if your child inherits $1 million dollars from your estate, and then subsequently gets divorced, the ex-spouse will receive $500,000 of your money.  Using the same example above, you can protect your child’s inheritance by creating a revocable living trust.   Here again, the trustee can turn off the income stream to prevent a disgruntled son-in-law from receiving his unearned share.

Control

No matter how they’re raised, it’s not uncommon for children to be irresponsible or need at least some level of guidance.  With a trust you can create payment terms so that children don’t blow their inheritance on impulsive purchases.  For example, many trusts stipulate that children may only use funds for “health, maintenance, education, and support” until they reach the age of X, thereafter payments made over time to protect against divorce, litigation, and creditors.   This method is very common and puts parents at ease even with responsible children.

You don’t have to be rich to protect what you’ve spent a lifetime trying to build.  To find out whether a trust is right for your family, take the one-minute trust questionnaire at www.DoIneedaTrust.com.  There are a number of different trusts available and the choices are infinite.  With every scenario, careful consideration of every trust planning strategy should be considered for the maximum asset protection and tax savings.  For more information, you can contact Dan A. Baron of Baron Law LLC at 216-573-3723.  Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law.  Dan can also be reached at dan@baronlawcleveland.com

Daniel A Baron Estate Planning Lawyer

Irrevocable Life Insurance Trust – Is It Right For You?

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Cleveland, Ohio, Estate Planning lawyer, Daniel A. Baron, of Cleveland, Ohio, offers the following information on establishing an Irrevocable Life Insurance Trust (ILIT). Is it the right fit for you when creating your estate plan?

When you think about life insurance, you typically are going to use this as a vehicle to plan for the possibility of passing away while still having loved ones to support. What kinds of expenses do you look to cover after you pass?

  • Mortgage expense
  • Children’s future education
  • Credit card debt
  • Vehicle loans
  • Funeral costs
  • Your spouses’ daily needs
  • Your children’s daily needs
  • Spouse and children’s health needs
  • Etc.

You may want to consider creating an Irrevocable Life Insurance Trust (ILIT).   Quite simply this is another tool to maximize your estate tax savings while still giving you the benefits of insurance coverage.  As the name states this is an irrevocable trust so you cannot remove this policy from the trust at a later date and have it revert to your personal name.  You do maintain control over it as far as naming the Trustees and the Beneficiaries and changing them at any time in the future if the need arises.

As mentioned this would serve as a great way to maximize your tax liability upon your death. Keeping in mind that when you pass away and insurance company sends your check to you, the government is waiting for their share of the funds.  So the benefits of putting your life insurance policy in the Trusts name:

  • Reduces the size of your estate, therefore reducing your tax liability
  • You can consider reducing the amount of coverage since you will not have to guard against the tax hit thus savings you insurance premium dollars
  • The cash value of the policy is protected against creditors
  • If your spouse, children, or other named beneficiaries are receiving any government aid such as Medicaid, this helps protect the benefits your beneficiaries are receiving

To see whether or not an Irrevocable Life Insurance Trust is the best fit for your tax planning situation, you need to speak with an experienced Estate Planning lawyer. Contact Daniel A. Baron of Baron Law today at 216-573-3723 to answer any questions you may have on a creating an ILIT.  I welcome the opportunity to work with you and recommending the best solution for your needs.

Helping You and Your Loved Ones Plan for the Future

Estate Planning Lawyer - Cleveland Ohio - Baron Law LLC

Do I need a Trust?

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Exploring whether you need a trust may be answered below visiting this questionnaire: DoIneedaTrust.com.   In addition, you may find the following information written by Cleveland, Ohio estate planning lawyer Daniel A. Baron useful.

Even if your name isn’t Bill Gates or Warren Buffet, it does not necessarily mean that the need for you to establish a trust does not exist. If your Net Worth is greater than $100,000* and you have very specific desires as to how you would like to disperse your assets after you pass away, you should consider creating a trust.  Although you would have a will in place as well, by establishing a trust you will maximize your tax benefits.  In addition this will also protect your assets from creditors and ensure that your heirs receive the items you would like to pass onto them.  This not only pertains to liquid assets such as cash and your investments but property as well.

There are a number of different trusts available to you to create which can protect your assets and minimize your estate taxes at the end. Each of us has our own needs when it comes to protecting our assets for the next generation and to make sure that your wishes are followed after your passing.

Some of the different types of trusts you may want to discuss to see what best suits your needs:

  • Revocable
  • Irrevocable
  • Credit Shelter / A-B Trust
  • Generation Skipping
  • QPRT
  • Irrevocable Life Insurance Trust
  • Children’s Trust
  • Medicaid Trust
  • Life Estate Trust
  • Medicaid Asset Protection Trust
  • Intentional Defective Grantor Trust

To see what trust is best suited for you, contact an Estate Planning Lawyer. These are some of the topics you should be prepared to discuss:

  • Do your investments name a beneficiary or do they have a POD (payable on death) or a TOD (transfer upon death) form attached to them?
  • Do you have a child with special need that you need to have cared for after your passing?
  • Do you own any real estate out of state?
  • Do you have a unique plan of how you would like your estate divided?

*To determine your Net Worth take the sum of your total assets (cash, property, investments, etc.) and subtract your total liabilities (mortgage balance, credit card debt, etc.). Plain and simple take what is OWNED and subtract what is OWED.

To get answers to your questions as to what type of trust is best suited for your specific needs you should speak with an experienced Estate Planning lawyer. Contact Daniel A. Baron of Baron Law today at 216-573-3723 to answer any questions you may have on creating your trust.  We welcome the opportunity to work with you and recommending the best solution for your estate planning needs.

Helping You and Your Loved Ones Plan for the Future

 

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What Is A Credit Shelter Trust?

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Cleveland, Ohio estate planning lawyer, Daniel A. Baron, of Cleveland, Ohio, offers the following information on what a Credit Shelter Trust is and should it be part of your comprehensive estate planning.

If you are married and an investor, for example, consider establishing a Credit Shelter Trust. This can also be referred to as an A-B Trust and is an Irrevocable Trust.

The benefits of a Credit Shelter Trust is, that it allows the assets of the trust (up to a predetermined amount, i.e. $500,000) to transfer to the beneficiaries specified within the trust, typically your children, without any estate taxes being assessed.    Also, your spouse continues to have all rights to the assets of the trust and any income generated until the spouse passes away.

If you are a blended family, a Credit Shelter Trust might be the right tool for you as part of your comprehensive estate planning. If at the time of death of the first spouse the assets of the deceased spouse to immediately into the Credit Shelter Trust.  If the assets transferred are larger than the predetermined amount (we used $500,000 as the example), the excess assets go into a trust which qualifies for the Marital Deduction.  Since the Credit Shelter Trust is irrevocable, it has great estate tax liability advantages as well as making certain your assets are passed along to your beneficiaries, typically your surviving spouse and your children.  Establishing a Credit Shelter Trust insures that the worry of the step-parent now getting all the assets, your assets will now be distributed to the beneficiaries as you intended them.

In the event your spouse is still living and would need to dip into the trust’s assets that were set aside for your children, it would be up to your Trustee to assess the necessity of the transfer of funds. The step-parent would not have carte blanche to the funds.

For answers to any questions you may have on a Credit Shelter Trust and making it a part of or your Comprehensive Estate Planning, contact Daniel A. Baron of Baron Law today at 216-573-3723. Let’s work together to see what the best Trust is for your situation.

Helping You and Your Loved Ones Plan for the Future

 

Cleveland Elder Care Lawyer

When is a Legal Guardianship Necessary for my Parents?

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on when it becomes necessary to change legal guardianship for your elderly loved one:

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Legal Guardianship is used when a person is unable to make or make sound decisions about themselves personally or their property. These same persons can likely be or already have been a victim of fraud or undue influence.  Although a guardianship may limit a person’s rights considerably, establishing a guardianship should be used after other actions have failed or are no longer available.

In the event a legal guardianship may not be totally necessary there are some alternatives you may want to consider that will still protect your loved one:

Some rights of the elderly which may be affected once a guardianship is put into place:

  • Medical treatment consent
  • Making End of Life Decisions
  • Voting
  • Enter into a contract
  • Possess a driver’s license
  • Selling Property

It is always best if the guardian consults with the individual to make any decisions that affect that person if they are still able to make sound rational decisions. However sometimes, the guardian must make the decisions themselves if your loved one is no longer able to participate.  The guardian should always take into consideration the individuals wishes if they are known.

Let’s start the conversation about when is the best time to consider establishing legal guardianship for your loved one. For more information on reviewing your goals for Long Term Care as part of your Estate Planning, contact Daniel A. Baron of Baron Law today at 216-573-3723.

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Long Term Care – Paying for the Nursing Home

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers the following information on the paying for Long Term Care and incorporating it into your Estate Planning:

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There are misconceptions regarding Long Term Care and who is responsible for paying for any care. This information may be used for informational purposes only.  For more information, or to speak with an experienced Medicaid planning attorney, contact Dan Baron at Baron Law.

Medicare:

In Ohio, Medicare only pays for Long Term Care IF you require rehabilitative care or skilled services. Skilled services are:

    • If you are in a nursing home, the maximum number of days Medicare pays for is 100; however the average covered stay is much shorter at 22 days
    • If you are able to stay at your own home, Medicare pays for skilled home health care or other skilled in-home services but only for a short period of time
    • Medicare does not pay for any non-skilled assistance for your ADL’s (Activities of Daily Living) which tend to make up the majority of in home Long Term Care.
    • You are solely responsible for paying for Long Term Care services provided to you that would not be covered by any other public or private insurance programs. For additional information regarding Medicare, please visit https://www.medicare.gov/

 

Medicaid:

  • Pays for the largest portion of Long Term Care services, provided your income meets the states minimum eligibility requirements.
  • Medicaid will cover your costs depending on how much assistance you need with Activities of Daily Living.
  • There are numerous considerations when considering Medicaid and it’s important to talk with a Medicaid planning attorney.  To learn more about some considerations, visit this Medicaid Considerations Article.
  • There are other federal programs available for specific populations and circumstances that may pay for Long Term Care
    • Older Americans Act
    • Department of Veterans Affairs

Private Health Insurance

  • Employer sponsored or private health insurance, cover the same kinds of limited services as Medicare
  • If your carrier does cover Long Term Care, typically it will only be for skilled care but only short term

Other Private Payment Options can include

For more information on reviewing your goals for Long Term Care as part of your Estate Planning, contact Daniel A. Baron of Baron Law at 216-573-3723.