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Trust Attorney Baron Law

Five Reasons Why Having a Family Trust is Better Than a Simple Will

When planning for your loved ones, one common misunderstanding is thinking that you have to be ultra-wealthy to need or benefit from a trust.  While a common misconception, a lack of knowledge in this area can be costly. Even if your estate is fairly small, you still want to avoid the high costs and inefficiency of probate, as well as providing asset protection for your children.  Family trust planning can protect your nest egg while also providing several other advantages over a simple will.

  1. Family Trusts Avoid Probate

Having a simple will is better than having no plan at all; however, a simple last will and testament does not avoid probate.  Probate is a court system designed to administer your will and pay creditors.  Unfortunately, the probate court can be costly and time consuming.  In fact, according to the AARP, the average estate will lose between 5-10 percent of assets when administered through probate. Also, the minimum time to administer a will in probate court is six months, but the average time in most counties is eleven months.

If properly created, a Family Trust can seamlessly transfer assets to your heirs while avoiding probate. There is not a minimum time of administration, and there are no probate fees.  Additionally, there are no court forms to fill out, and probate court has no involvement in the administration.

  1. Asset Protection

If you have minor children, then having a Family Trust becomes a must. A minor child cannot legally inherit your assets.  Even if it were possible, most parents would consider it unwise for their seventeen-year-old child to receive a large sum of money.  Family Trusts provide asset protection by holding assets in trust for your children’s benefit.  Even when your children become adults, the trust still provides asset protection against creditors, litigation, and divorce.  For example, if you passed away leaving a large sum to your forty-five-year-old child who has spending issues, a pending litigation, or a divorce in process, the trust would hold the assets until your child is in a better place in life.

In addition to concerns about children, another common asset protection measure, given divorce rates over fifty percent, occurs when individuals are 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.  The wife has two kids from a prior marriage. The husband has no kids except for step-children of the current marriage.  The wife passes away and leaves everything to her husband, and the contingent beneficiary naming her two kids.  Five years later, the husband remarries and creates a new estate plan naming his new spouse as primary beneficiary of his estate, the contingent naming his two step-children. Then the husband dies. The new spouse inherits everything and the children are accidentally (or in this case intentionally) disinherited.

Famous Last Words, “I would never get remarried!” In reality, this is a very typical example of the need for some level of control and strategy. A Family Trust in this example would solve the wife’s concerns entirely. And if this were not a second marriage, a Family Trust might still make sense for couples wanting to keep the estate within the family and avoid remarriage issues.  Moreover, the Family Trust in all circumstances would provide asset protection for children as mentioned above.

  1. Privacy

In addition to probate being time-consuming and costly, it is also public information.  Today, anyone can troll the probate docket observing how much money is in your estate, who the beneficiaries are, and what step in this long process you are in. This may sound harmless, but public knowledge can lead to scams against your beneficiaries, as well as placing information that you wouldn’t want available in cyberspace.  A Family Trust is a private design where only you and those you want involved will have access to your financial information and bequests.

  1. Control

Family Trusts provide control even after you have passed.  A simple will distributes assets outright as opposed to over time.  Family Trusts allow you implement conditions and asset protection strategies years after you have passed.  For example, you can dictate in your trust that your children will receive payments in thirds after achieving the ages of 30, 35, and 40.  Perhaps you have no children and you are leaving your assets to a sibling. In that case you can dictate that assets will not be distributed if your sibling is in a nursing home or receiving Medicaid.  Without a Family Trust, the assets in this second example would all go to the nursing home and/or would kick your sibling off their federal benefits.

  1. Efficiency

Family trusts are efficient and cost effective.  Although a Family Trust may cost more than a simple will to create, the amount of money saved after you have passed is worth the effort. Additionally, Family Trusts can be administered in a fraction of the time compared to probate. Finally, a Family Trust can be easily administered while creating a legacy for your family.

Helping You And Your Loved Ones Plan For The Future

For more information on Family Trusts or to schedule a free consultation, contact Dan A. Baron at Baron Law LLC at 216-573-3723 or dan@baronlawcleveland.com

About the Author:  Dan A. Baron is the founding member of Baron Law LLC focusing his practice to the areas of estate planning, business law, and elder law.   Dan was recently voted an Ohio Super Lawyer Rising Star, an award nominated by other competing attorneys and one that only five percent or less achieve.   Mr. Baron graduated with honors from Cleveland Marshall College of Law.  He holds a business degree from The University of Akron, cum laude, and is a member of the Cleveland Metropolitan Bar Association, West Shore Bar Association, Akron Bar Association, Business Networking Institute, and American Bar Association.  Dan is also a member of the estate planning section at the Cleveland Metropolitan Bar Association.

Probate Attorney

Top Reasons Why You Should Avoid Probate

Whether it was a gathering for a joyous wedding or the passing of a loved one, we’ve all heard about Probate Court at some point or another. We are going to dive into what probate is and why you want to avoid it when it comes to your estate, if you have no plan.

First, what is probate? Probate is the legal process of administering a person’s estate after their death. You’re probably wondering “OK, but what does that mean?” It means:

The court will determine your assets at the time of your death.

The court will determine the value of those assets.

The court will distribute the assets to those that are entitled to them by law.

Probate court, during the process will also appoint someone to supervise the administration of your estate.

Why would I want to avoid this process? The main reasons to avoid probate are the extensive timeline and astronomical expense that are both required for probate. The minimum amount of time that is required by probate court is 6 months, but in actuality this process takes 14 – 18 months on average. The reason for this extensive timeline is to give creditors a chance to make a claim on your estate, this in turn reduces the inheritance intended for your loved ones.

The probate process is very expensive. The average cost for probate court is between 5 – 10% of the estate’s total value. This means if your estate is valued at $500,000 you can expect an average cost of between $25,000 – $50,000.

The probate court appoints someone that they deem “suitable” to administer your estate, if you have no plan. This means that your wishes will not be heard and your assets, including your personal property and belongings will be distributed by the court to whom is legally entitled.

Lastly, probate court is public record. This means that all of your assets, your heirs, and your debts are available for anyone to see. Privacy is something that should be valued during this sensitive period of bereavement.

This costly and lengthy process can be avoided with a proper estate plan put in place. Your assets should be distributed according to your wishes, not to who is just legally entitled to them. Your heirs should have the ability to access the inheritance you intend on leaving them, and your loved ones deserve the privacy and time it takes to mourn your loss.

If you have not previously considered an estate plan or have questions about how to get started on planning, contact us at Baron Law today. You can go to our website for a free consultation to start planning for the future for yourself and your loved ones.

 Helping You And Your Loved Ones Plan For The Future

 

About the author: Kristy Gross

Kristy is a Legal Assistant at Baron Law LLC kristy@baronlawcleveland.com.

Divorce Estate Planning Steps

Important Post Divorce Planning Steps

Ending a marriage, whether though divorce or dissolution, isn’t a simple process. It’s not like flipping a switch, one day you’re married, another day you’re not. Whether a couple was together for a relatively short period of time or set down roots together for decades, spouses separating financially, physically, and emotionally is a labor-intensive journey. With all the paperwork and meeting with attorneys throughout the divorce, the last thing people want to do is sit down with an Ohio estate planning attorney and go over estate planning documents. Unfortunately, reviewing and updating estate planning documents is a non-negotiable part of martial separation. Regardless of whether you do anything or not, your estate planning documents will have a profound effect on you during some of the most critical, and vulnerable, moments of your life and in the lives of your family.

Apart from drafting a new last will and testament, powers of attorney, updating beneficiary designations, and considering trust use, what else should be updated post-separation? The following is a list of additional advice every experienced Cleveland domestic attorney would give their divorced or separated clients regarding their estate documents:

Review Your New Tax Reality

A big part of estate planning is minimizing taxes. Namely, estate, generation-skipping, and gift taxes. Since probate administration can easily eat up 5% to 8% of the value of a decedent’s estate, everyone is looking to save money. The good news, however, there are exemption limits. This is where the unified tax credit comes in. The unified tax credit is a certain amount of money and assets that can be given free of estate, generation-skipping, and gift taxes. Individuals get a set exemptible limit, but married couples can effectively utilize twice the amount than that of single individuals. Obviously, an estate plan formed on tax assumptions centered around accessible martial exemptions and deductions needs to be rethought post-divorce. The last thing you want is your surviving friends and family to deal with an out-of-date tax plan for your estate. The unified tax credit, however, is only the tip of the tax iceberg. Numerous federal, state, and local taxes work differently for married couples than they do for single individuals, make sure the middle of April isn’t full of nasty surprises because you assumed you’d still be taxed at a married rate.

Review Current Property Ownership

Often spouses are joint owners of property obtained during the lifetime of the marriage. Vehicles, boats, martial homes, and vacation residences all must be reviewed post-divorce to confirm who the listed owner or owners are.  What is said on paper matters in the legal world and a house owned jointly with a right of survivorship goes to the surviving owner, regardless of whether the divorce is finalized. Often in the whirlwind of divorce negotiations and arguments, simple things like updating a deed goes unnoticed. If there is a dispute, however, one of the first places a court and attorneys will look to determine who gets what is legal documentation. As such, make sure the ownership documents for your most significant assets reflect your life going forward.

Review and Update Guardianships 

If a spouse is nominated as a guardian for a minor or someone with special needs, divorce and martial separation does not revoke that appointment. If the time ever came when a guardianship is necessary, the existence of a pending or finalized divorce would be a factor a court would consider during an appointment hearing but it wouldn’t be determinative. Again, leaving it up to a court official to decide who cares for a child or someone with special needs is never preferable. That is why experienced Ohio divorce and estate planning attorneys will make sure you take a hard look at who will care for those who depend on you when you are no longer able. A simple designation in a basic estate planning document can make a whole lot of difference to your children and wards.

Review and Amend Existing Trusts

Given the utility of trusts, from tax savings, avoiding probate, ensuring eligibility for government programs, and plain old peace of mind, they are becoming more and more prevalent within families. Trusts, however, are only one piece of a comprehensive estate plan and when used within the context of a married family, are highly tailored to the issues, concerns, finances, and benefits of marriage. Thus, when divorce rears its ugly head any effected trust must be reevaluated for effectiveness and potential martial asset division. Often a pre-martial trust does not survive a divorce, too much regarding a trust was created on the assumption of marriage. As such, sit down and read your trust with your Ohio estate planning attorney and ask yourself if your trust is actually accomplishing what you want it to.

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.

Helping You and Your Loved Ones Plan for the Future

House in Trust with Mortgage

Can I Put My House In A Trust If It Has A Mortgage?

More and more people are becoming ever more concerned with either protecting their assets, maintaining eligibility for Medicaid, or leaving as much as possible to children and future grandkids. As such, more and more people are realizing the remarkable utility of trusts within their estate planning. One’s residence often represents the most significant asset an individual or couple possesses, and for many, financial assistance is needed to purchase it, that is mortgages. A common question presented to Cleveland estate planning attorneys is, can protect my house with a trust if it has a mortgage? As with any legal question, the answer is not black and white. 

  • What is trust? 

To understand how the what, when, and how of funding your trust with a mortgaged house, we must start with the basics, what is a trust? 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. A critical aspect of trusts is that the assets housed within them usually aren’t counted as a part of the trust creator’s taxable estate. Thus, 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. Afterwards, when the owner dies, the assets are not in the owner’s estate and subject to probate, and if the trust is drafted properly, are further ignored for the purposes of Medicaid eligibility. Further, trust assets pass via the beneficiary designations set down when the trust was created. These conveyances via beneficiary designation are much simpler, quicker, and cost-effective then going through probate and can be halted or expedited when circumstantially advantageous depending on the terms of the trust.   

  • When can a mortgage be called?  

The next basic to understand is when can your bank come after your house, i.e. a bank calling on a mortgage. A mortgage being called is when a financial institution/holder of the mortgage demands that the full amount of a mortgage be paid. When this can occur is conditional and which events will trigger are often denoted within the mountain of legal documents that physically make up your mortgage. In the context of funding a trust with a mortgaged house, your “due-on-sale clause” is what your estate planning attorney will be concerned about.    

A “due-on-sale clause” is a contract provision which authorizes a lender (your bank), at its discretion, to collect on the loan, i.e. declare it immediately due and payable if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent. This is fair because banks depend on mortgages getting paid off, or at least foreclosed, and the mortgage contract is between you and the bank, not the potential buyers and the bank.  

  • How can a mortgaged house in placed in trust without having the mortgage called?  

Any “due-on-sale clause” facially seems to be a death nail to any thought of funding trust with a mortgaged house, I mean, not many people have thousands, if not hundreds of thousands, of dollars in liquid assets to immediately pay off a house. This is where the Garn-St. Germain Depository Institutions Act of 1982 comes into play and your estate planning attorney earns his money. The relevant part of the Garn-St. Germain Act in the context is 12 U.S. Code § 1701j–3, subsection d, as follows:  

(d) Exemption of specified transfers or dispositions.  With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon— […] 

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; … 

So, to bring everything back down to Earth, this subsection possesses the two “prongs” of the Garn-St. Germain test, occupancy and beneficiary status for the trust makers for the mortgaged house. When there is a mortgage, a trust must be properly drafted to include specified reserved occupancy language in the trust to satisfy the occupancy prong of Garn-St. Germain. Simply, the trust makers, you, must specifically reserve the right to live in the house. Further, in some way, the trust makers, must be a trust beneficiary. The beneficiary status prong usually isn’t an issue with self-settled trusts given their nature, i.e. trusts made with the intent to provide some tangible benefit to the trust makers. An argument can be made that the reservation of occupancy rights inherently makes the settlors beneficiaries, however, more cautious estate planning attorneys further make trust makers income beneficiaries as well.  

Facially, drafting a trust to satisfy the prongs of the Garn-St. Germain test appears straight-forward, however, care must be taken when making your trust. The interplay between the actual language of a trust can have profound effects on taxation, ownership, inheritance, and eligibility for state and federal assistance programs whose admittance guidelines are based on income and asset thresholds.    

Now it is important to note that the issue of a mortgage is an issue apart from Medicaid eligibility, though often the two are interrelated. Addressing both concerns requires the same solution, precise drafting of trust language that is statutorily compliant.  Under the Garn-St. Germain Depository Institutions Act of 1982, placing the home in the MAPT does not trigger the “due on sale clause” contained in most mortgages provided certain steps are taken and legal standards are satisfied. Thus, with a knowledgeable estate planning attorney, you can remain Medicaid eligible and avoid Medicaid Estate Recovery, while still living in your home and paying the mortgage as you always have.  

Helping You And Your Loved Ones Plan For the Future

Baron Law Estate Planning Attorney

Preventing Children From Blowing Through Their Inheritance

Blood is thicker than water and we get to pick our friends, not our families. There are a lot of pithy and whimsical sayings that have been passed down through the generations that attempt to explain and characterize the complex and often contradictory nature of family relations. When it comes to deciding who gets the money and stuff after a family member dies, often, tragically, the baser natures of our family members are on full display.

Trusts are an ubiquitous estate planning tool that a lot of people have heard about but not a lot of people know the details of how they work. Trusts afford privacy for trust assets, control over how, when, and if trust assets are distributed, and potential protection against creditors, litigants, divorce, and greedy family members. All these benefits associated with trusts sound great but how exactly is all this accomplished? Once again, consulting with an experienced Cleveland estate planning attorney is always the quickest and best way to get your estate planning questions answered.

  • What are spendthrift trusts/provisions?

A common concern for estate planners is, how do I prevent my descendants from wasting their inheritance? A quick look at any one of the innumerable stories of multi-million dollar lottery winners who end up broke and destitute a few years later illustrates how most who come into vast sums of money quickly tend to spend that money unwisely. Now, if you decide using a trust is right for you and your family, within the structure of your trust, you can write in terms that will lower the opportunities for named beneficiaries to squander their trust distributions. Though not %100 foolproof, spendthrift trusts and spendthrift provisions are very common tools for trust makers to use to protect their trust and protect trust beneficiaries from themselves.

In Ohio a spendthrift trust is a trust that imposes a restraint on the voluntary and involuntary transfer of the beneficiary’s interest in trust assets assigned to that particular beneficiary.

Under Ohio law, specifically the Ohio Trust Code, spendthrift provisions are terms within a trust which restrain the transfer of a trust beneficiary’s interest. Spendthrift provisions block both voluntary transfer of trust assets stemming from the beneficiary action and volition and involuntary transfer of trust assets, usually from creditors or assignees whose claims are usually traceable back to a named trust beneficiary.  See O.R.C. § 5801.01 (T).  As a general rule, a spendthrift provision is valid under the UTC only if it restrains both voluntary and involuntary transfer.

For illustration purposes, here is an example of a bare bones spendthrift provision. Note, an experienced estate planning attorney would not solely rely on the follow language to protect you.

“A. Spendthrift Limits. No interest in a trust under this instrument shall be subject to the beneficiary’s liabilities or creditor claims  or to assignment or anticipation.”

How do they work?

Looking at the legal definition for spendthrift trusts and spendthrift provisions, it may be difficult to understand how these operate and, consequently, how they may be beneficial. In a nut shell, if a trust is or has a spendthrift provision, in most circumstances, trust assets are not subject to enforcement of a judgment until it is distributed to the beneficiary. This means that a trust beneficiary cannot use trust property that is assigned to them as collateral for a loan or to pay off a civil judgment.

 Thus, spendthrifts can prevent creditors, litigants, or the beneficiaries themselves from reaching into the trust to take assets contrary to the terms of the trust. This “reaching in” usually stems from beneficiary misconduct. Note, however, in some circumstances, spendthrift can be circumvented. Namely, in the case of certain child support obligations and claims of the State of Ohio or the United States. Whether spendthrifts can be circumvented depends highly on the nature of the claim against the trust and the nature and language of the trust. An experienced Ohio estate planning attorney is in the best position to determine if and when a particular creditor can reach past a spendthrift and get at trust assets.

Why do I need them?

Put bluntly, no one likes having their money or property taken from them. Or in this instance, by creditors, litigants, or claimants of beneficiaries uncontemplated by the language of the trust. A primary reason for any grantor in making a trust is to ensure control of trust assets. So, if unknown third parties reach into a trust due to a beneficiary doing something unwise, it goes contrary to express wishes of the grantor and all the effort that went into making a trust.

Further, premature distributions of trust assets can have serious consequences for trust management. The “internal finances” of a trust are often based upon assumptions regarding the amount of money/assets within trust accounts and predetermined distribution times. So, if money/assets are taken early this can lead to premature exhaustion of trust funds which may affect the whether future trust distributions can occur at all, in that trustees can’t distribute what isn’t there. Further, premature distribution may leave trustees with insufficient assets to pay trust taxes or administrative costs. There is also the unfairness of premature distribution, why should beneficiaries who followed the terms of the trust get their distributions later or in a lesser amount than the beneficiary who has creditors, civil judgments, or owes back child support.

The importance of comprehensive and effective drafting a trust terms cannot be understated. Often it is what is left out of trust documents which end up hurting grantors and trust beneficiaries. Spendthrift trusts and spendthrift provisions can come in a variety of forms to match the needs and desires of a particular grantor. The utility of spendthrifts, however, can only be enjoyed by grantors if a competent Ohio estate planning attorney is used in the formulation and drafting of a trust. Never underestimate the importance of matching good legal counsel with comprehensive estate planning.

Helping You and Your Loved Ones Plan for the Future.

What is the Difference Between a Trust and a Will in Estate Planning?

What is a Will?

A will is a basic document outlining your wishes for your estate. It identifies an executor of your estate and provides the opportunity to divide your assets among your beneficiaries. This tool allows you to control the future care for any minor children and division of your assets. Without a will, the laws of your state will determine how your assets are divided. Therefore, a will is the minimum estate plan you need to care for your family and your assets. However, the purpose of a will is to guide the probate court to act in accordance with your desired plan.

What are the limitations with a will?

Probate

A will does not avoid probate court, and the average time to administer a will through probate is 18 months, while the minimum is six months. The length of this process can place a burden on the family left behind, and it allows creditors to make claims on any debts you owe.

Cost

Probate requires a number of fees–on average 5-7% of the value of the estate.

Public Transaction

Anything that goes through probate is public information. This means that both your assets and the way you choose to divide them become public, able to be found online in detail.

What is a Trust?

A trust is another form of estate planning that allows you to divide your assets as you desire. While this is similar to a will, a trust allows greater control and bypasses the limitations of a will as seen above.

A trust avoids probate, thus freeing your assets and your family from the court system. As such, probate fees are also avoided, and your personal information (assets and beneficiaries) is kept private.

What are other benefits of a trust?

Taxes

Saving on taxes is one benefit of a trust. However, given current tax laws, this is not an advantage unless your estate’s value is over 10 million dollars. Note, though, that this exemption is subject to change, and tax benefits may become more valuable.

Asset Protection

This is the biggest reason people use trusts over wills. Trusts allow for greater protection of the estate in case of something unexpected such as a beneficiary who develops a credit issue, or the possibility of a divorce.


If you are realizing that estate planning is more important and less simple than you thought, Baron Law will walk you through every step to ensure that your family and your assets are protected. To learn more about the difference between a will and a trust, or to begin planning for your future, contact the estate planning attorneys at Baron Law today.

Six Month Creditor Claim Blog Photo

Six-Month Creditor Claim Period

Payment of the decedent’s debts is one of the basic responsibilities of an estate fiduciary. Ohio law specifically provides that the fiduciary of an estate shall proceed with diligence to pay the debts of the decedent. The critical questions remain, however, of who to pay and when to pay them. Unless a fiduciary is confident that the estate will have more than enough assets to pay all of the debts of the decedent, it may actually be better not to pay any debts received until the expiration of the creditor’s claim period. Under Ohio law, legitimate creditors have six months to present their claims. When such period expires, only the majority of legitimate debts claims against the estate will remain because if specified claims are not brought timely, they are foreclosed as a matter of law. At this time it can be determined whether or not there are sufficient probate assets with which to pay the debts or if the estate is insolvent. Most people, however, are ignorant of this little wrinkle of Ohio probate law. As such, when a loved one or friend passes, always contact an experienced Ohio probate attorney.

All too often a gung-ho fiduciary starts paying estate debts without a comprehensive accounting of estate assets or complete list of debts and obligations. This results in payment of debts which may have fallen off after the creditor’s claim period or, more seriously, if Ohio statutes are not fully complied during estate administration or assets are prematurely distributed, potential personal liability for a fiduciary. This means that if a surviving spouse, heir, beneficiary, or legitimate creditor should have gotten something from the estate that a fiduciary mistakenly gave away, the fiduciary must personally pay them their share, whatever the amount or value of the asset. This looming threat of personal liability is a significant reason why must appointed fiduciaries seek the counsel of experienced Cleveland estate planning and probate attorneys.

It cannot be understated the significant windfall potential for an estate if the six-month creditor’s claim period is waited out. The difficulty, however, is convincing friends, heirs, and devisees to be patient. Easier said than done. Now, after the debts of the estate are settled and verified and the time has come to pay them, unless the decedent’s will provides otherwise and/or in the absence of sufficient cash or other liquid assets to satisfy the debts, payment is made from the proceeds of the sale of: 1) tangible personal property which has not been specifically devised, then 2) specifically devised tangible personal property, then 3) non-specifically devised real property, and finally 4) specifically devised real property.

Good Ohio legal counselors always advise their client to be wary. A common point, but often overlooked one, of avoiding probate via beneficiary designations or trust usage is privacy. If everything passes via will, anyone anywhere can look up the estate online and see what is going on. A little information in the wrong hands can do a lot of damage. For example, a recent client came into a piece of property of the east side of Cleveland. Naturally, the previous owner failed to property taxes for many years. Lo a behold a nice company called the client and offered to negotiate, settle, then pay off the back taxes, for a nominal fee of course. Client, being uninformed, agreed on the spot and gave out his credit card information. The estate had been closed for quite some time, way past the six month creditor claim period, and now the client has new problems to deal with. All this could have been avoided with a quick 30-second phone call with their Cleveland estate planning attorney, don’t make the same mistake they did.

Helping You and Your Loved Ones Plan for the Future

LTC Medicaid Rejected

My LTC Policy Was Rejected By Medicaid, What Now?

Common scenario for Cleveland estate planning attorneys. Estate planning client comes in distraught. They did the smart and sensible thing, they purchased a long-term care insurance policy years ago to help cover the cost of later-in-life medical costs. They recently applied for Medicaid thinking their LTC policy wouldn’t be counted for calculating their Medicaid eligibility. Unfortunately for them, they received rejection letter from the Ohio Department of Medicaid saying they didn’t meet the asset requirements. Now, the Medicaid benefits, that they were counting on and always thought were readily available no longer are. Now, their estate plan is seriously threatened, and they are scrambling to make sense of the situation and found out what went wrong.

As the old saying goes, the best-laid plans of mice and men often go awry. The relationship between long-term care insurance polices and Medicaid eligibility is not a simple one. As with anything involving government bureaucracy, what you don’t know can hurt you and an experienced guide is worth his weight in gold. Two lessons often taken to heart far too late to avoid tough decisions and missed opportunities.  So, what happened to the person above? The best way to illustrate what happened is to answer the two most common questions anyone in that situation would ask.

Why did my LTC policy get rejected from Medicaid?

Only certain long-term care policies that comply with the guidelines set by the Ohio Long-Term Care Insurance Partnership program count as qualified policies and therefore aren’t countable Medicaid resources. So, what polices are “qualified?”

Per the Ohio Department of Insurance, for a LTC policy to qualify, insurance companies’ policies must meet several requirements, including:

  • The policy must have been issued after Sept. 10, 2007
  • The insured must be a resident of Ohio when coverage first becomes effective
  • The policy must be a federally tax-qualified plan based on the Internal Revenue Service Code (qualified plans can lower federal taxes, but they have benefit triggers that are less flexible than those required by nonqualified plans)
  • The policy must meet strict consumer protection standards (standard fee-look period, coverage outlines, mandatory informational disclosures, etc.)
  • The policy must include certain protection against inflation (the most common inflation protection automatically increases benefits each year by 5%)

So, if you have a long-term care policy, but don’t know, or worse hope without knowing, if it is a qualified policy, you’re likely in for a rude awaking when you apply for Medicaid.

What do I do now that my LTC policy was rejected by Medicaid?

Before any definitive answer or plan can be formulated, certain information about a Medicaid applicant must be answered definitively. At the very least, the information and/or documents needed are:

  1. LTC policy documents – should be overt on whether it was sold/defined as a qualified LTC policy.
  2. Rejection notice from the department of Medicaid – reasons for reject and any explanation regarding why the submitted policy was rejected.
  3. How does the applicant know their LTC policy is a qualified one?
  4. Contacting the insurance carrier to find out the exact details of the LTC policy in dispute.
  5. Where and how did an applicant purchase the LTC policy.
  6. Did the applicant receive the required CSPA complaint disclosures and documents (if was sold non-qualified policy but received CSPA docs could an indication of potential fraud).
  7. The realities of applicant’s current financial situation and health needs.

This last point is really the starting point and is exactly why you retain the services of experienced estate planning attorneys. Every estate planning attorney starts with the same questions, what do you need, what do you have, and prove it. No intelligent planning or decisions can be made until you know exactly where you stand. Further, in this context, the realities of where you stand are even more important because now your options are limited and you are, in a way, at the mercy of the Ohio Department of Medicaid.

If you have been rejected by Medicaid you are essentially in the realm of Medicaid crisis planning, where important questions must be asked, and tough decisions must be made. If someone is applying for Medicaid, the need is now and a solution must be found. One such critical consideration is the current need for care and the potential penalty period. To illustrate, let’s say a rejected applicant has a $400,000 non-qualified LTC policy. As of right now, with current Medicaid penalty divisor of $6,570, 400K/6,570 = approximately 61 months of Medicaid ineligibility, a little more than 5 years.

With this five-year Medicaid ineligibility period on the horizon, options are limited. Namely you can either appeal the rejection or resort to Medicaid spenddown. Medicaid spenddown is a beast all its own, is never something anyone wants to do, and largely depends on how ineligible for Medicaid you are, based on your current income and assets. For most, however, the good news is this situation and Medicaid spenddown, if the proper Ohio estate planning attorneys are used, will never be a worry because they will have done things the right way and won’t be subject to any nasty surprises. Failure to surround yourself with the right advisors, regretfully, often leads to  uncomfortable discussions and decisions that will have to be made sooner rather than later.

Helping You and Your Loved Ones Plan for the Future

Estate Planning Attorney

What Is The Difference Between A Living And Testamentary Trust?

Your estate plan consists of many documents and covers a lot of bases. From protecting assets from creditors and litigants to avoiding probate, 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. Durable powers of attorney, QTIP elections, unlimited martial deduction, and all the many names of the many different types of trusts, to name a few.  

That said, one of the most common questions posed during an initial estate planning consultation is, what is the difference between a living and a testamentary trust? Years ago testamentary trusts were all the rage, a lot of people have them but don’t know how they work or if they are even providing any benefits to the ultimate goals of estate planning. Since trusts represent one of the most utilitarian estate planning tools, in that they have the ability to do many useful and advantageous things in regards to estate planning, understanding the difference between living and testamentary trusts is critical to providing context to any advice given by Ohio estate planning attorneys.  

  • What is trust? 

As always, we must start with the basics, what is a trust? 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. A critical aspect of trusts is that the assets housed within them usually aren’t counted as a part of the trust creator’s taxable estate. Thus, 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. Afterwards, when the owner dies, the assets are not in the owner’s estate and subject to probate. 

  • What is a living trust? 

A living trust, also called an inter-vivos trust, is simply a trust created when you are alive. They can be either revocable and irrevocable and when someone is talking about a trust, usually it’s a living trust. Living is the umbrella term for a trust and is usually paired with other descriptive terms such as family, asset protection, or revocable or irrevocable to describe the primary purpose of the trust and what it is designed to do. Living trusts must have the same basic composition as other normal trusts, a grantor, trustee, and beneficiary.   

  • What is a testamentary trust? 

A testamentary trust is created in your last will and testament, specifically, it directs your executor of the estate to create it.  Thus, unlike a living trust, a testamentary trust will not take effect until you die.  The terms of the trust are amendable and revocable, in that they can be changed at any time, which makes sense because it doesn’t come into being until after death.  

One of the major distinguishing features of a testamentary trust is the involvement of the local probate court. From the time of the settlor’s death until the expiration of the testamentary trust, the probate court checks up on the trust to make sure it is being managed properly. Court involvement is usually sought in the context of testamentary trusts because these trusts are usually created for beneficiaries who, for some reason, are unable to received and manage trust funds appropriately.  

  • When would you use one over the other?  

At the end of the day, just like every other estate planning decision, it is all circumstantial and highly depend on personal situation and estate planning goals. (Which is why estate planning attorneys ask so many questions when you first meet them.) For the sake of some definitive answer, however, there are some tried and true situations when one is preferable over the other.  

If you are interested in avoiding probate, avoiding excessive court oversight, keeping your estate private, and saving your estate money by simplifying property conveyances and avoiding potential will contests, then a living will is likely a good choice. As mentioned before, since living trusts can be created to meet almost any goal or concern of estate planning, the major deciding factors of use is initial cost and ultimate utility of a trust, i.e. there is no point buying a trust if you have nothing to fund it with.   

Testamentary trusts, on the other hand, are created for young children who may be at risk of receiving improper inheritances or trust distributions, family members with disabilities, or other who may get large amounts of money or assets that enter into the estate upon a testator’s death. Further, these trusts are often highly recommended for parents who are at risk of dying at the same time. 

A testamentary trust can set parameters on your estate and how it will be distributed and/or managed after you pass on.  For example, you might include terms that allow for discretionary distributions of $1,000 a month to be given to your children until the age of 21 in the event both parents pass. This ensure that, even if tragedy strikes, the kids will, at least in some way, be supported by their parents, whether they’re gone or not.  At the end of the day, testamentary trusts, like all trusts, allows estate control even after death. Testamentary trusts are unique, however, in that the allow for greater oversight, via the courts, in what’s going on inside the trust. This can be a double-edged sword, however, in that, depending on how long the court needs to be involved, legal fees and administrative costs could add up making this trust structure unattractive if the trust is designed to last a long time.  

Again, 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.

 

Charitable Trust Attorney

Thinking Of Giving To A Charity? Consider A Charitable Remainder Trust.

Significant and stable retirement income, reduction in taxes, whether income, capital gains, or estate respectively, and the provision of critical needed support for worthy charitable organizations and endeavors. If any, or all, of these sound good to you and your estate planning goals, charitable remainder trusts might be a useful option. Charitable remainder trusts, not to be confused with charitable lead trusts, is a way many people are planning for retirement but also “paying it forward.”  

  • What is a Charitable Remainder Trust? 

A charitable remainder trust is a type of irrevocable trust. Irrevocable trusts are trusts in which the grantor, you, 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, the grantor can dictate whatever terms desired to govern the trust, but after formation, those terms control independent of grantor’s wishes and desires. 

What makes an ordinary irrevocable trust in to a charitable remainder trust are a few unique characteristics. Namely, the guiding purpose of the trust and the remainder interest. First, usually, the primary goals with a charitable remainder trust is to reduce taxes and provide additional retirement income. The namesake charitable remainder, however, denotes that eventually, after the grantor passes, whatever is left over in the trust, the remainder, is given to a chosen charity.   

  • How do Charitable Remainder Trusts help pay for retirement? 

The name of game is tax reduction and maximizing potential income production, but how do charitable remainder trusts accomplish this. In a nutshell, it begins with transferring high valued assets into an irrevocable trust, thus initially avoiding estate taxes when making the trust.  

After funding, assets are then sold by the trustee, thus avoiding capital gains on the sale, and these proceeds are reinvested into income producing assets, which can add to available retirement income. Additionally, after you pass, the whatever is left in trust, the remainder, passes on to the charitable beneficiary. The precise manner how a grantor will receive income is usually either a fixed distribution rate via percentage value of appreciated assets or a flat amount of actual income earned by trust assets.   

It should be noted, that charitable remainder trusts should not be viewed as the primary vehicle in which an individual will pay for retirement, these trusts really supplement income more than anything. This reality is largely due to the nature of these trusts. A large trust funding takes full advantage of the associated tax breaks, has the ability to earn significant and usable income for retirement expenses based off the initial principle funding, and, at the end of life, represent a charitable contribution large enough to actually make a different in the world. Thus, if an estate is healthy enough in which a charitable remainder trust is an attractive option, usually the grantor(s) have a lesser concern with the financials of old age.  

  • How are Charitable Remainder Trusts taxed?  

At initial funding of a charitable remainder trust, estate tax is avoided on the assets placed in trust and an immediate charitable income tax deduction is enjoyed. The charitable income tax deduction often bumps the grantor down to a lower tax bracket for the year. Additionally, capital gains are avoided when the trustee liquidates trust assets for reinvestment.  

Regarding annual personal income tax for monies distributed from the trust, this is usually paid per your individual income tax rate, however, often at this point in people’s lives, when they are no longer personally working, and most money and assets have already been transferred into various estate planning tools, people are often in the lowest tax bracket. Further, though distributions from a charitable remainder trust are taxable income, often, if proper estate planning was implemented, the total amount for a taxable estate is so low for a person that distributions for a charitable remainder trust are, for all intents and purposes, tax free. 

  • Do I give up control over what I put in my Charitable Remainder Trust? 

No, the trustee you select to manage the trust will govern the trust and its assets according to the rules and terms you dictate at creation. You are always in control. Further, grantors may retain the right to change the trustee if they are doing a poor job or change the charity to another qualified charity without losing any past or future tax advantages.  

  • If I help out my favorite charity with a Charitable Remainder Trusts, won’t my children be mad? 

The happiness of your friends and family all comes down to proper planning. For those people with sizable estates, it is no problem to leave significant money to both children and favorite charities, there’s more than enough for everyone. There is a common concern, however, that people with modest estates don’t have the option to charitably bequest anything, I mean, there’s only so much to go around right?  

Not exactly. Yes, it is correct that money and assets are finite, but, with the income tax savings inherent in using a charitable remainder trust, a person always has the option to either fund an irrevocable life insurance trust or buy a life insurance policy outright. Either way, the life insurance purchased with the tax savings can replace the full value of any assets left to charity and make sure any surviving children receive their full inheritance as well. Using life insurance, via trust or ordinary policy, also avoids probate concerns and income taxes. Estate tax and asset protection concerns, however, on any policy proceeds will only be addressed through the use of a life insurance trust. Ensuring children aren’t left out in the cold when it comes to inheritance is a major concern for most people, make sure your Ohio estate planning attorney is giving a comprehensive rundown of all of your estate planning options, life insurance options included.      

If you think a charitable remainder trust could help you and your family, speak with your Ohio estate planning attorney. You can convert appreciated assets into lifetime income. You can receive an immediate charitable income tax deduction. You can remove assets from your estate, thus reducing estate taxes. And since no capital gains apply when the assets are sold, you receive more to reinvest in income generating property. All of which is in addition to make a substantial gift to your favorite charity.  

Helping You and Your Loved Ones Plan for the Future