, Cleveland, Ohio, offers information for you to reflect upon while you are setting out looking for an estate planning attorney to help protect as much of your assets as you can. For more comprehensive information contact Baron Law LLCBaron Law Cleveland to draft your comprehensive estate plan to endeavor to keep more of your assets for your heirs and not hand them over to the government by way of taxes.
Planning and drafting a trust is no easy task. The to-do list to make a trust can be daunting, assets to appraise and catalog, fiduciaries to pick, and properly funding the trust itself to name only a few. The labor-intensive process of trust formation is worth it, however, because trusts are one of the few ways that a person can be confident their hard-earned money and assets go to where they are supposed to go and in the manner of their choosing.
A critical decision on the to-do list of trust formation is picking the law to govern the trust agreement. The significance of which state law you chose cannot be understated, it will affect what you care about most with your trust, your money, assets, and beneficiaries. Some states have no income tax on trusts, others do. Some states tax income accumulated or capital gains held within a trust for nonresident beneficiaries, other states don’t. Some states allow perpetual trusts, some states impose a hard limit on the number of years a trust can exist. Every state has its own trust and tax code nuances and retaining a Cleveland estate attorney who knows trusts is a must. So, choosing a particular state’s law to govern your trust is important but how does a person actually designate which law they want? This is where choice of law provisions come into play.
What are choice of law provisions?
Choice of law provisions, as the name suggests, are the provisions within the trust agreement which designate which state law controls the terms of the trust. Namely, determining the law that will govern the meaning and effect of particular trust terms.
Ohio law allows the trust creator to select the law that governs that meaning and effect of the terms of the trust. “The law of the jurisdiction designated in the terms of a trust determines the meaning and effect of the terms unless the designation of that jurisdiction’s law is contrary to a strong public policy of the jurisdiction having the most significant relationship to the matter at issue.” O.R.C. § 5801.06 (A). The state selected by the trust creator does not have to have any connection to the trust or the assets within it. The trust creator is entitled to choose any governing law, even those of other countries, regardless of where present or future trust property is physically located, whether such property is personal or real property, or whether the trust is created inter vivos, during the creator’s lifetime, or testamentary, via a will at the moment of death.
Choice of law is not to be confused with provisions that choose the principal place of trust administration and the governing law of that administration. They are mutually exclusive from one another. “The administration of a trust is governed by the law designated in the terms of the trust to govern trust administration.” O.R.C. § 5801.06 (B). The principal place of trust administration ordinary determines which court has primary, and sometimes exclusive, jurisdiction over the trust. As a rule of thumb, choice of law provisions set the rules for the meaning and effect of trust language while the principal place of administration decides who does the trust “legwork” and applies those rules. Both choice of law and principal place of administration decisions are of critical importance that will affect almost everything regarding your trust for its entire existence. Naturally, such decisions should only be committed to after consulting an expert Ohio estate planning attorney.
Why do they matter?
As previously mentioned, choice of law provisions determine the rules that govern the terms of the trust agreement. Since trusts at their most basic are nothing more than agreements, which law a trust agreement is beholden to effects practically everything important regarding a trust. Which state law governs decides, to name only a few for illustration, how long a trust can exist for, for how long and to what extent creditors of the beneficiaries can file claims against the trust, whether modification of trust terms is available, whether or not the Uniform Trust Code will apply, and if and to what extent numerous taxes are levied against trust assets. Since which law you choose is so important, an experienced Cleveland estate counsel should always be retained.
What if my attorney messes it up?
Ohio law states that in the absence of a controlling designation in the terms of the trust, the law of the jurisdiction having the most significant relationship to the matter at issue determines the meaning and effect of the terms. O.R.C. § 5801.06 (A). What this really means is a probate court will cross that bridge, and make a determination of controlling law, if the issue ever comes up. This is not a good situation to be in. The whole point of drafting, funding, and maintaining a trust is to eliminate mystery and the maybe’s from where and to who your estate assets are going to ultimately go. Thus, if an issue arises regarding controlling law for your trust, you have no definitive idea which state law will control. Often issues of this nature occur after you pass, so a probate court can’t ask you what you meant or what you wanted. Thus, trust assets and money may go to people they shouldn’t, be taxed unexpectedly, or find themselves vulnerable to third-party creditor claims that otherwise they should have been protected from.
The importance of competent Ohio estate planning and trust drafting cannot be understated. Trusts are designed to protect a lifetime of earning and saving, your lifetime of earning and saving, and ensure those earning and savings go to where you want them to, your friends and family. But, as it often is in this world, a simple omission or oversight can be the wrench that stops the engine. An experienced Ohio estate attorney in your corner will make sure your trust continues to run smoothly while you’re living and long after your gone.
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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 firstname.lastname@example.org.
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.