Trusts — Answering 5 Common Questions to Help Your Estate Planning Strategy

As a Trusts and Estates Attorney, I hear many questions about estate planning strategies — including Trusts. There are several misconceptions about Trusts and how Trusts can be used to with a person’s estate planning strategy.

This article will address five common questions about Trusts in Ohio.

Do You Have to Give Away Control of All of Your Property with a Trust?

This is a common question. Most often the answer is no.

There are Trusts, such as certain types of irrevocable Trusts, where you lose all control. But the vast majority of Trusts utilized by many families are Revocable Trusts. You are both the Grantor and Trustee in these types of Trusts. You will retain control of all of your property until death or incapacity.

Do You Pay Higher Taxes with a Trust?

The answer is no in many circumstances. However, there is a Trust income tax rate which applies to accumulated and undistributed income from a Trust. But this usually applies to a Trust during administration after the death of the Grantor (the person who establishes the Trust).

In the vast majority of cases, especially with Revocable Trusts, during the lifetime of the Grantor the Trust does not pay a higher income tax rate. In fact, the IRS ignores the formality of the Trust with Grantor Trusts and taxes all income to the Grantor’s individual income tax return.

Can You Save on Estate Taxes with a Trust?

In general, yes, a Trust can help with the alleviation of estate taxes at the death of the surviving spouse. There is a concept called portability under federal estate and gift tax principles. Portability means that the first spouse to die can transfer their unused federal estate tax exemption to their surviving spouse. The result can be a doubling of the estate tax exemption for the surviving spouse and surviving heirs.

However, presently, there is an $11.7 million exemption from the estate tax. Portability can result in creating a $23.4 million exemption from the estate tax. Although, with the estate tax exemption as high as it currently stands in 2021, most families do not have an estate tax concern.

Does a Trust Help You Avoid Probate?

The answer is yes in many instances. Probate is the legal process required to transfer title of property from one person to another at death. This process can occur either with a Will or without a Will. However, the requirement for probate administration only applies to property and assets which are legally titled in the name of the decedent (the person who died) at the time of death.

Assets which are not titled in the name of the decedent do not require probate administration. The Trust comes into play in these circumstances. Assets which are properly titled to a Trust are administered according to the terms of the Trust and not through the probate court administration process. As such, a Trust can help you avoid probate.

Does a Trust Help Avoid Fighting Among Your Heirs?

A Trust can help prevent fighting among your heirs. However, it does not always prevent fighting among your heirs.

Just as with a Will, a beneficiary to a Trust or an heir can file an action attacking the validity of the Trust documents. However, Trust documents usually have more protections against frivolous legal actions.

The Trust document can be challenged just like a Will can be challenged. The key to preventing these legal issues is to devote significant time to the planning process and make sure your heirs know your wishes.

For More Information

Please contact the Trust and Estate Attorneys at Aronoff, Rosen & Hunt, LPA at (513) 241-0400. You can also use our contact form to schedule a time to discuss your Trust and Estate questions and concerns. You can also download one of our free reports on estate planning and trusts available on our website.

Our Trust and Estate Attorneys look forward to speaking with you!