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Do I Need a Trust?

By: Bryan C. Palmer, Associate

Trusts are often viewed as the most ‘optional’ part of an estate plan. But you will do yourself a disservice by not considering how this powerful estate planning tool can help you reach your goals. You should consider the following questions when deciding whether a trust is appropriate for you.

Q: Do I want to control who is responsible for managing my assets if I become incapacitated?

Without a trust or a power of attorney honored by all the financial institutions where you have assets, a probate court appoints a guardian to manage your estate when you are no longer able to do so. That process – which may be open to the public – gives the probate court ultimate control over who serves as your guardian.

A trust enables you to name successor trustees who can control your assets following the guidelines you establish.

Q: Do I want my affairs to remain private and avoid a lengthy probate process?

Probate is a public process by which assets that are in your name at the time of your death are inventoried, used to pay creditors and administration expenses, and then distributed to the beneficiaries named in a last will and testament (or, if there is no will, according to Ohio intestacy statute). For most estates, the minimum amount of time to go through probate is six months, but most estate administrations last longer.

Trusts are commonly used to avoid having your assets go through probate. Any asset included in a trust at your passing will avoid this long public process.

Q: Do I want to avoid estate taxes?

The federal estate tax exemption is currently high – $12.06 million per person in 2022 and $12.92 million per person in 2023 – but it will be reduced on January 1, 2026, to $5 million, plus an adjustment for inflation, unless Congress changes the law before then. Though not many people have to worry about the estate tax, it is a serious issue for those who do: the estate tax rate can be as high as 40%!

Various types of trusts can reduce or eliminate federal estate tax exposure by ensuring that your assets go to the people and charities of your choice rather than the government.

Q: Do I want to provide my beneficiaries with creditor protections or prevent them from losing their inheritance in a divorce?

Many people do not like the idea of a child’s inheritance effectively going to their creditors due to an auto accident, a major medical issue and the accompanying bills and possible lawsuits.  Similarly, they do not want their child’s inheritance to go to a former in-law in the event of divorce.

With careful counseling and drafting, all these risks can be mitigated by using a trust and still allowing for a great deal of control of the trust assets by the beneficiary.

Q: Do I want to preserve needs-based public benefits eligibility for a beneficiary or do I plan to apply for such benefits myself?

Suppose any of your beneficiaries receive needs-based public benefits. In that case, an inheritance may essentially become a gift to their healthcare facility or cause them to lose eligibility for public benefits altogether. Special needs trusts can prevent these outcomes and still allow a bequest to be used for expenses beyond those covered by public benefits, including vacations, hobbies, and other recreational activities.

In addition, if you plan to apply for needs-based public benefits, irrevocable trusts can be used to protect your assets from being seized by the state upon your passing so that they can be transferred to your family.

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Trusts are a powerful and flexible tool that can help you meet your lifetime and testamentary goals. If you have questions or would like to talk to an attorney about establishing a trust, please contact our office.