You May Establish A Trust For THAT?

November 12th, 2014

When drafting trusts for non-tax reasons, clients and lawyers may get extremely creative in types of trusts that may be established under Ohio’s Trust Code. Because the Ohio estate tax was eliminated and the federal estate tax exemption is now over five million ($5,000,000), the format of trusts can be made more flexible to permit clients to accomplish a broader range of goals. Below are some examples of what clients have sought in their estate planning, and types of trusts available to help clients achieve those goals.

Incentive Trusts may be established to encourage behavioral modification of beneficiaries. Essentially, some clients may wish to provide incentives for their children and loved ones to adopt certain behaviors by providing “guidance from the grave.” For example, there may be provisions for education expenses for drug-free living, requirements of gainful employment, or criminal-free lifestyle.

“Quiet Trusts” allow a trustmaker (aka settlor, grantor) to appoint other individuals as a “beneficiary surrogate” to essentially administer the trust on behalf of the beneficiary or until the beneficiary is of sound mind or in a place of responsibility to make decisions that the beneficiary is permitted to make by the trust terms.

Marital Trusts hold assets for the sole benefit of the surviving spouse, which may protect children from a prior relationship (children not of the surviving spouse). If not qualifying for the QTIP marital deduction, then all income does not need to be distributed to the spouse.

Trusts with “Powers of Appointment” permit major flexibility in dealing with unexpected problems. One may permit limited or general powers of appointment to others, including beneficiaries. These are particularly useful when a creditor tries to attach trust proceeds, a beneficiary suffers from a disability (mental, physical, drug dependence), or perhaps a divorce is involved.

Lineal Descendant’s Trusts are designed to hold a share of the client’s money that was meant for another beneficiary who may have predeceased the client. It’s a back-up in case a beneficiary unexpectedly passes before the client who established the trust.

Pet Trusts for pets are now available for the care of an animal that is alive during the client’s lifetime. The idea is that money is made available to care for an animal after the client’s passing, and then the trust terminates, distributing the remainder to whatever beneficiary or beneficiaries the client selects.

Wholly Discretionary Trusts are a technique for protecting assets for beneficiaries that are disabled, who are addicted to drugs or alcohol, not financially savvy, or perhaps subject to creditors of their own. The beauty of these trusts is that Ohio’s Department of Jobs and Family Services bless these trusts such that a beneficiary on Medicaid, may remain on Medicaid and still receive benefits from the trust.

“Unitrusts” aka “Total Return Trusts” permit a beneficiary to receive not only income, but also a portion of the trust principal that is perhaps a set percentage. This permits trust assets to be invested in a portfolio which is consistent with Modern Portfolio Theory. Money managers and trustees appreciate this method because it permits a more balanced and diversified portfolio because they are freed from restraints of producing income which may diminish the principal anyway.

“Residence” or “Cottage Trusts” may protect a family home or vacation home that has special meaning. Perhaps it provides the surviving spouse the right to remain in the home with the home passing to children upon the surviving spouse’s passing. Provisions may be made in the trust to generate income for upkeep, insurance, and taxes.

Third Party Catastrophe Trusts may be established for children or other victims who lose a parent or other means of support. These may be used for living or education expenses.

If you are interested in achieving certain objectives in your estate planning, contact us for a free consultation. Where there is a will, there is a way.