What Is A Trust? Cincinnati Estate Planning Tips

Many clients come to our Cincinnati law office to discuss their “wills” and “estate planning”. They have often just met with their financial advisor or had a casual discussion with a friend or just gone through a probate proceeding on behalf of a loved one that was a bad experience. Their first question is “do I need a trust” and “what is a trust and what will it do for me”.

A trust in general is an estate planning tool that we use to accomplish many different client needs. A trust is a listing of “instructions” as to how to administer trust assets. In a trust agreement, the grantor of the trust names someone to serve as “Trustee” to manage and control the assets held by the trust.

Grantor Trust

It is a common estate planning tool to use a “grantor trust”, which is set up by the “grantor” during his/her lifetime, and commonly names the Grantor as the initial trustee. Assets are transferred into the trust to allow for the named trustee to control the assets. This type of trust contains two sets of instructions. The first set of instructions explains to the trustee what to do with assets during the grantor’s lifetime (pay bills, make gifts, pay income and principal back to the grantor when requested). The second set of instructions explains to the trustee what to do with the assets upon the death of the grantor.

Because the trust owns the assets, the second set of instructions will act as a will, instructing the trustee how to distribute the deceased grantors assets. Because the trust was created during the grantor’s lifetime, it does not need to have the authority of probate court to allow the trustee to proceed to pay expenses or make distributions.

Grantor trusts treat the assets as owned by the Grantor still for income tax purposes and because the grantor is usually the original trustee, the use and transfer of assets is fairly seamless.

A Grantor Trust is a great tool used to avoid having to use probate court to administer an estate.

Inter Vivos Trust

A trust set up during the lifetime of the Grantor is known as an “inter vivos” trust. It is not published or filed in any court. There is a privacy aspect to an inter vivos trust that benefits many clients. Unlike a will or public administration of an estate in probate court, the distributions made from an inter vivos trust are private and off record. This can be an important factor to many clients.

Another purpose for creating a trust is to allow the trustee to have control and direction over assets that would be paid to a beneficiary that would be a minor or a person with special needs. If a minor or special needs individual inherits under terms of a will, there funds must be administered through the court until there are an adult or until their special needs no longer exist. This type of administration can be time consuming and costly. Having these same type of provisions in an inter vivos trust allows the trustee to administer without court supervision and accountability and is much more efficient as to time and cost.

Trust and Taxes

One misconception of a trust is that “it will save my estate from paying taxes”. The tax due on any estate has nothing to do with whether an asset is held by the individual, a grantor trust, transferred by trust or will or just court authority. Everything owned by an individual is subject to estate taxation. The good news is that the State of Ohio has eliminated its estate tax effective 2013, and the federal estate tax has a universal individual exemption of over $5,000,000 per person before any tax would be paid. Very few estates pay estate taxes anymore.

So What Is A Trust?

So in answer to the original question a trust is just my instructions to my named trustee of what to do with my assets during my lifetime and at my death. It is a private instruction which may contain special provisions for my minor or special needs beneficiaries. It is an estate planning tool to avoid probate and costs of administration of my estate.

A trust can be as simple or as complicated as necessary, depending upon the circumstantial needs of the client. When discussing your estate plan with your attorney, ask what benefit a trust could have for your circumstances. It may not always be needed but it can be a valuable tool in the overall estate plan.

Contact Donnellon, Donnellon & Miller To Set Up A Trust

If you are ready to set up your trust, use our contact form to reach out to the Cincinnati law firm of Donnellon, Donnellon & Miller in Montgomery Ohio for assistance, or call 513.891.7087.