Estate plans are like pants. One size does not fit all. Each person has different needs when it comes to their pants. Some require pants that will withstand physical labor during their construction job while others need flexible, athletic pants to keep up with their young children during their everyday routine. Tall individuals need tall pants and short individuals need short pants. Each person also has different wants when it comes to their pants. Some like neutral colors or a loose fit. Others like bright colors or a skinny leg. Estate plans boil down to individual needs and wishes as well. This article outlines three common needs that present itself in situations where a revocable trust should be considered as part of an estate plan.
A trust is a fiduciary agreement whereas a Grantor agrees to transfer to the Trustee certain property to hold. The property is held and eventually distributed by the Trustee pursuant to the terms of the trust. The Trustee is given powers through the trust agreement to perform and act in certain ways; however, the Trustee has certain fiduciary duties that they must uphold whenever they act on behalf of the trust. Most times, the Grantor will also serve as the Trustee until death or incompetency. Then a Successor Trustee, appointed by the Grantor, should serve in the fiduciary capacity. Trusts can be revocable or irrevocable. Revocable trusts allow for the Grantor to make changes (i.e. transfer property out of the trust or amend the distribution plan) or completely revoke the trust agreement. Generally, irrevocable trusts cannot be changed or revoked. Trust agreements can serve as a tool to bypass probate upon death.
There are certain situations in life that may trigger the need for a revocable trust.
1. You own real estate in more than one state.
State laws differ on the methods available to you to keep your real estate outside of the jurisdiction of the probate court after you pass away. For example, for a single landowner in Ohio, a Transfer on Death Designation Affidavit is available to do just that. However, in neighboring Kentucky, there is no way to keep a single owner’s real estate out of probate unless you have a trust agreement. By transferring all real estate to the Trustee of a trust agreement, no matter the state in which they are located, your holdings are consolidated and held in one place and all real estate owned by the trust will remain out of probate at your death.
2. You have minor children.
Minor children cannot directly inherit. If a minor child is given an asset through inheritance, it must be held and maintained by others until they are of a certain age. Absent pre-planning, a guardianship case must be opened on behalf of the minor child which has probate court oversight. Leaving assets to a minor child through a trust avoids the need for guardianship, allows for you to provide for your minor children in the event that you pass away, and give you the opportunity to dictate the rules and guidelines as to how and when funds are spent on behalf of your child.
3. You are leaving assets to one or more adult beneficiaries who may struggle with poor judgement or financial habits.
One of the unique features of a trust agreement is that the Grantor may provide a very specific distribution plan. If a Grantor provides for beneficiary through a trust agreement, they can determine how much is given and at what times or intervals the funds are dispersed. The Trustee must follow these rules and guidelines in making distributions to the beneficiaries.
Like the perfect pair of pants, the right estate plan for you requires the gathering of information and an exploration of your needs and wishes. These three situations indicate that you should consider a forming a trust but other factors should be taken into account. Call Rosenacker Law Office to find out the first step in starting the estate planning process.
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