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Baron Law

Advanced Directives – My Personal Experience When Planning for the Unexpected

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My Story

Like many of you reading this article, I never think a major medical disaster could happen to me or, if something did happen, that I would be competent enough to make decisions for myself. Well, as a ‘relatively young’ guy, this was not the case recently when I needed emergency surgery to prevent permanent paralysis.   Two years ago, I was practicing my golf swing on a late Thursday afternoon at Sleepy Hollow in Brecksville, Ohio.  I’m a terrible golfer and I wanted to ensure I wouldn’t embarrass myself the next day while playing with a client.  Near the end of my practice, I decided I wanted to see how hard I could hit the ball.  I hit the ball with maximum effort that ended up landing on the fairway outside of the nets.  During my swing I felt a ‘pop’ in my back and my leg went numb.  I decided to call it quits and go home to rest.

That night, while resting I leaned over to grab the TV remote.  Without warning I had excruciating pain suddenly occur in my back and my legs went limp.  I was on the floor unable to move or reach my phone. Luckily, my friend was visiting and he called EMS.   When EMS arrived, I was crying from the pain, unable to move my legs, laying on the floor.  I have never experienced anything more painful in my life. The paramedics gave me a shot of fentanyl for pain – it did nothing. Upon arriving at the hospital, the nurses gave me a shot of morphine – it did nothing. Then the doctor ordered a dilaudid.  After an hour of being on a combination of fentanyl, morphine, and dilaudid, I was finally relieved of pain and in addition, also relieved of my mental abilities.

After an MRI was performed, the doctor came to give me the news.  She said that I had a severe lateral herniated disc. The disc exploded and was piercing the nerves that control my legs.  I would need emergency surgery within the very immediate future, or I would have permanent paralysis in my right leg for life.  She explained that because the herniation was lateral, it required a more complicated approach.  It was one that she could handle, but she felt her colleague (who was on vacation) was more adept due to his experience. The doctor suggested that I wait three days, in severe pain and on multiple pain meds, to have her collegial surgeon perform the surgery. She needed to know what I wanted to do.   However, because of the effect the medications I was taking for pain, I did not have the mental competency to make this decision myself. Instead, those who I named in my advanced directives would need to make these decisions for me.

What are advance Directives?

Simply put, advance directives are legal documents that provide detailed instructions about who should oversee your medical treatment and what your end-of-life or life-sustaining wishes are. In the event you are unable to speak for yourself, like in my case of mental incapacity, the medical professionals can contact someone else who has authority to make those decisions for you. Though there are many advance directive documents out there, the three most common are Healthcare Powers of Attorney, HIPAA Authorization and a Living Will.

Healthcare Power of Attorney – A healthcare power of attorney allows you to appoint a trusted person to make all healthcare decisions in the event that you are unable to make them for yourself.

Living Will – A living will eases the burden on your healthcare POA to ‘pull the plug’ when you are in a permanent vegetative mental state.

HIPAA (Health Insurance Portability and Accountability Act) – Medical records are private and are covered under the HIPAA laws. You Healthcare POA must have the authority to obtain your medical records through a properly executed HIPAA authorization.

My Healthcare POA

By this time, I was admitted in the hospital and the surgeon needed an answer regarding when I wanted the surgery to take place.  The doctor asked to contact my healthcare POA. I said, no problem her name is Kathy and I will provide her number.  I reached for my phone and it was then I realized that I had forgotten it when EMS brought me in.  Like many of us, I did not memorize Kathy’s number so without my phone, I was stuck.  Additionally, since this was during the outbreak of COVID my friend who called EMS was not able to come into the hospital either.

The nurse taking care of me looked through my cart and noticed I already had my healthcare POA on file, naming Kathy as my Agent. I wasn’t thinking clearly so I hadn’t thought to ask the nurse to check.  It was then that I remembered, in a slight daze, that I practice what I preach.   Three years earlier I completed all of my advanced directives and made sure to upload them with all three major hospitals: Cleveland Clinic, University Hospital, and Metro.

The hospital called my Healthcare POA and she came to my rescue.  As a nurse herself, she knew exactly what medications I was on and how to interpret the medical situation.  Moreover, and critically important, she knew how to handle the insurance barriers that come with getting medical treatment.  Had I not completed my Healthcare POA, Living Will and HIPAA several years prior, I may have had a surgery from an inexperienced surgeon or worse yet, may have been paralyzed for life.  Additionally, had I not uploaded these precious documents with my local hospitals, I would not have had my healthcare agent’s phone number.

When I preach to clients about maintaining updated advanced directives I am preaching from experience.  I didn’t need them, until I needed them! Advanced directives are easy to obtain and require minimal effort to have them uploaded to local hospitals.  I implore you to have them drafted by an attorney or at the very least, complete them the next time you’re at your family care physician. For more information or to learn how Baron Law can help you complete your advanced directives, contact us at 216-573-3723.

 

Trust Attorney Baron Law

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

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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

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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.

Security Deposit Blog

Security Deposits: A Practical Primer

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People often have questions about things that are relevant to their jobs or lives. For landlords, a usual topic of conversation is security deposits. Previously, legal standards and procedures regarding landlords keeping security deposits was covered, but what do these rules mean in ordinary terms? The following are a few good tips for every landlord, a little bit of good advice in the right place often makes all the difference. But if you really want to get on the ball, save the most money, and protect yourself and your business, call an experienced attorney at Baron Law.

Be Upfront with the Tenant, Give them a Move-Out Letter

All good things must come to an end, lease agreement and tenancies are no different. So, in order to save time, stress, and avoid disputes over security deposits, using move-out letters is a good move. Move-out letters are tangible notice to tenants that they are ending the tenancy, good proof of breach for later on, and makes sure all parties are on the same page.

At minimum, your move-out letters should tell the tenant how the property/unit should be left, whether it should be cleaned, etc., explain the procedures and timing for final inspection of the premises, include the itemized deductions from the security deposit, if any, tell the tenant to return keys, provide a forwarding address for the security deposit, and explain the details of how any monies will be returned.

Move-out letters should be standard operating procedure for every landlord. If you are having trouble drafting your own letter or want to ensure every important point is covered, hire an experienced Cleveland attorney to do your drafting.

Itemizing a Security Deposit Withholding/Deduction

A recognized rule in Ohio is that any security deposit withholding or deduction must be itemized. The logic of this requirement is to make landlords give specific reasons to tenants why the security deposit is being withheld so tenants have the necessary information to decide whether or not to chase after the deposit via legal means. (It’s only fair, and the law is all about fairness.)

So, you know to itemize, but how is it done and what does it look like? Again, common sense is a good rule of thumb. If any ordinary person saw your itemized calculation, could they make sense of it? At minimum, take the total amount of the deposit, and in a basic list, give the identity, value, and reason for each deduction. For example, the following was found insufficient by a court:

 

2-Times Mowing Yard                 $    40.00

Wal-Mart                                        $    112.59

Rug Shampooer                            $     29.66

Cleaning Lady                               $      75.00

$   257.25”

Schaedler v. Shinkle, No. CA99-09-025, 2000 WL 1283775 (Ohio App., 12th 2000). A court found this notice and itemization insufficient because it did not explain what the landlord had bought or why it was necessary. Though you must provide half-way decent information, the standards are not rigorous. A landlord may rely on estimates for local adverts if they are used honestly and in good faith.

When all else fails, Small Claims Court

Small claims court is the ever-present threat that makes tenants pay their rent on time. Landlords always have the option to pursue redress via the courts. Often theft, property damages, or amount of back rent, dwarfs the value of a withheld security deposit. Though a method is available, it doesn’t mean it is the best option. Good attorneys always counsel clients to pursue solutions without legal intervention. Expediency and cheapness is good for landlords and a small claims action is anything but.

In a nutshell, a small claims action flows in the following order:

1) legally actionable event,

2) collecting evidence,

3) filing a complaint,

4) serving a complaint,

5) waiting for trial date,

6) conducting a trial,

7) waiting for judgment, and

8) collections

All through out this process there are attorney conversations, communications between tenant and landlord, collection of evidence, and waiting, the ever-present waiting for someone to respond.

There’s a lot of stuff going on and all of it costs time and money. This is where good legal counsel comes in. Best case scenario a stern phone call and demand letter from an attorney scares the other party into paying. If that works, awesome, problem solves. If it doesn’t, a good attorney will tell you the pro’s and con’s of going the lawsuit route. Sometimes, though a landlord feels slighted and hates a breaching tenant, the payoff just isn’t worth the going through the courts. At minimum, a lawsuit will take months, will probably require a landlord’s in court testimony, and to pay an attorney to appear in court and prosecute a case will eat a significant amount of money. Often the sign of a trustworthy attorney is one who tell you not to retain their services.

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?

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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

Estate Planning Attorney Baron Law

D.I.Y. Estate Planning: Saving a Dollar Now, Lose a Thousand Later

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D.I.Y. Estate Planning:  Legal Zoom, Rocket Lawyer, and Youtube has granted an unprecedented amount of legal information to the public. Online forums, blogs, and television allow people to converse at any time and anywhere about pretty much anything. Nowadays ordinary people can undertake their own legal research, legal drafting, and, if necessary, personal representation.  Just because you can do something, however, doesn’t mean you should. Google searches and online videos are not a substitute for the advice and guidance of an experienced Ohio attorney and many people put themselves in a bad position after they convince themselves that an attorney is simply not necessary.

At the end of the day, do-it-yourself legal services is all about saving money and time. People don’t want to spend hundreds if not thousands of dollars on legal services and spend the time conversing and meeting with an attorney. Online legal materials, at least the cheap or free ones, are great at providing a false sense of security, that everything is straight-forward, do X and you’ll get Y.

Law firms hear the same problems and fix the same issues from self-representation every day. People who, after a quick google search, start drafting their own wills, LLCs, and contracts. People who put their faith in a disinterested corporation and a handful of document templates. Legal Zoom and Rocket Lawyer are not law firms and they do not represent you or your interests, they explicitly say so on their websites. They cannot review answers for legal sufficiency or check your information or drafting. An experienced Cleveland estate planning attorney, however, properly retained and with your best interests in mind will accomplish everything you expect, and often more.

Hired attorneys are under legal and professional obligations to do the best job possible. They don’t want to get sued for malpractice, they want you to pay your legal bill, and they want you to refer your friends and family. A particular client is concerned with a tree, while the attorney pays attention to the forest. A proper attorney will draft documents correctly with established legal conventions in mind, legalese isn’t something done for attorneys own benefit, it has a definitive and beneficial purpose. A lot of trouble is caused by D.I.Y. legal drafters and estate planners due to typos or the inclusion of legalese for legalese sake. Further, a knowledge of federal, state, and local law along with local procedure and jurisdictional customs is necessary to obtain a proper outcome with minimal cost and stress. At the end of the day, the legal system is made up of people, knowing who to talk to and when is a large reason why attorneys are retained.

We live in a brave new world, never before has so much legal information been so readily accessible to so many. In the same vein, never before has our lives been so complex and estate planning matches this. Attorneys do more than drafting and research, they advise you on the best ways to protect your family and assets in light of an ever-changing legal landscape and your own personal life and dreams. Often do-it-yourself legal services are simply not worth the risk and lull you into a false sense of security. Ultimately, you need your estate planning documents to do what you expect them to. As such, call of local Ohio estate planning attorney and make sure yours are done right.

Guardianship and Your Estate Planning

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What is Guardianship?

A guardianship is where a person has the legal authority to care for another.

Are There Different Types of Guardianships?

Minor Children-The most common type of guardianship is with minors. If something happens to children under the age of 18, then you need someone to act as a parent. A misconception is that if you appoint someone as a godparent over your child, this does not give that person legal authority over your child.

Elderly- As we get older, we may need someone who can watch after us and make sure we are getting what we need and doing what we need to as well.

Adults with Special Needs- Guardianship is also needed for adults with special needs so that they have someone to watch over them.

How do I Establish Guardianship?

With planning, there are three ways to appoint someone as a legal guardian, through:

  • Power of Attorney
  • Will
  • Trust

Without planning, you have to go through a court order which is far more expensive and gives you less power.

When Should You Establish Guardianship?

Anyone with children should immediately establish guardianship. The thing is, you never know what is going to happen, and that is why it is best to plan for the future just in case. If it is on your mind, do it now.

If you need to establish guardianship over your children, an elderly loved one, or a loved one with special needs; you can also learn more by visiting our website or by contacting us at Baron Law today.

Baron Law Estate Planning Attorney

Preventing Children From Blowing Through Their Inheritance

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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?

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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

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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