Terminating Irrevocable Trusts I: Changing What Can’t Be Changed

Baron Law LLC, Cleveland, Ohio, offers information for you to reflect upon while you are setting out looking for an estate planning attorney to help protect as much of your assets as you can.  For more comprehensive information contact Baron Law Cleveland to draft your comprehensive estate plan to endeavor to keep more of your assets for your heirs and not hand them over to the government by way of taxes.

Irrevocable trusts are trusts in which the grantor, i.e. the trust maker, relinquishes all control and ownership over the trust and the assets used to fund the trust. Thus, in theory, the trust can only be changed or canceled per the ways denoted by trusts terms and usually only then with the blessing of the trustee and/or trust beneficiaries.  

So, why would anyone give up control to another and chose to use irrevocable trusts? Conversely with living trusts, grantors keep “the keys” to the trust while with irrevocable trusts “the keys” are given up. In the eyes of the law, generally, what is inside an irrevocable trust no longer belongs to the grantor. Thus, grantors aren’t taxed on what’s inside these trusts and those with claims against the grantor can’t extend potential recovery to these assets as well. This is all well and good, but with everything in life, situations change. A previous estate plan, and accompanying established trusts, sometimes no longer serve the best interest of the grantor and their family. With current sky-high estate tax exemptions, the normal administrative costs associated with trust management, and, perhaps, an adjusting need for liquidity or differing type of asset control, some individuals are evaluating whether it’s worth keeping an irrevocable trust. If this is you, don’t despair. Despite what their name suggests, irrevocable, there are ways to terminate an irrevocable trust. Before, however, anything drastic like trust termination occurs, always consult an experienced Cleveland estate planning attorney to figure out all your options and plot the best course of action.  

Now if after consultation with professionals regarding your estate plan reveals that your irrevocable trust no longer serves your best interests, termination is an option. There are several methods for terminating trusts in Ohio, termination by court order, termination via private agreement, and termination by discretionary distribution. This blog concerns primarily the first method, court ordered trust termination.

   1.Court-Ordered Trust Termination  

In 2007 Ohio passed the Ohio Trust Code which governs the creation, management, and termination of trusts. Chapter 5804 primarily is the vehicle courts use to terminate trusts depending on the circumstances. Now, the most common circumstances in which this method of termination is used is either via independent motion on a probate court to terminate a trust for justifiable cause or as a recovery prayer in a civil suit that someway touches on a trust significantly enough to justify termination. Again, consult an experienced Ohio estate planning attorney, they will know when, how, and where to commence trust termination proceedings.    

       A.Trust Termination by Revocation or by Terms 

Per O.R.C. § 5804.10, a trust may be terminated to the extent that a court finds that: 

  1. It is revoked or expired pursuant to its terms; 
  2. There is no remaining purpose of the trust to be achieved; 
  3. The purpose of the trust has become unlawful or impossible. 

This particular code section denotes the authority/power of the court to terminate a trust. The respective standing, or ability, for a grantor, trustee, and trust beneficiary to petition to terminate a trust are also denoted within the Ohio Trust Code. Note, however, that within R.C. § 5804.10 no mention of settlor, trustee, or beneficiary consent is denoted. This means that if a court thinks termination of a trust is appropriate, they can do so. Now whether or not a particular probate court will take the feelings and considerations of the settlor, trustee, or beneficiaries into account when deciding to terminate a trust is dependent on the judge and jurisdiction. Again, you never can guarantee a particular outcome when you resort to court intervention. That is why you should always consult with an estate planning attorney before asking a court to do anything with your trust.        

        B. Termination of Noncharitable Irrevocable Trust 

Per O.R.C. § 5804.11, an irrevocable trust can be terminated by agreement, authorized by a court, with the consent of the settlor and all of the beneficiaries. Note, however, the trustee’s consent is not required. Though technically a court must approve of termination via § 5804.11, if all valid consent is obtained from the settlor and beneficiaries and all are competent to give such consent, a probate court will almost always approve of the termination and issue the order even if such termination is inconsistent with the terms of the trust and the trust’s material purposes.  

       C. Court Intervention Due to Changing Circumstances  

 Per O.R.C. § 5804.12, a probate court may terminate a trust due to a change in circumstances that has occurred since its creation. Per this section of the Ohio Trust Code:   

(A) The court may modify the terms of a trust or terminate the trust if because of circumstances not anticipated by the settlor modification or termination will further the purposes of the trust. To the extent practicable, the court shall make the modification in accordance with the settlor’s probable intention. 

(B) The court may modify the administrative terms of a trust if continuation of the trust on its existing terms would be impracticable or impair the trust’s administration. 

Further, upon termination of trust via this section, the trustee must distribute the trust property in a manner consistent with the purposes of the trust. O.R.C. § 5804.12 (C). An action under this section to terminate a trust may only be brought by a trustee or beneficiary and a court must act as close as possible to the probable wishes of the settlor but only to the extent practicable in the circumstances. Further, a termination under this section must be due to circumstances not anticipated by the settlor and such termination must be in accordance with the trust purposes. As such, though circumstances may allow for termination of a trust, interested parties just being disgruntled or dissatisfied with a trust’s management is not sufficient to warrant termination.    

Trusts are a useful estate planning tool to ensure increased permanence of your lifetime earnings and instructions down through the generations. Like all things, however, nothing is unalterable. Being aware of the potential reasons and methods for revoking irrevocable trusts can allow a settlor to dictate more effective terms but also allow avenues for change if completely unexpected or frustrating events occur. An experienced Cleveland estate planning attorney is invaluable in creating, managing, and, if the time comes, terminating your trusts.     

 Helping You And Your Loved Ones Plan For The Future

About the Author: 

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.   

Disclaimer: 

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.

What Is An Estate Plan, Part II – Life Documents? 

Baron Law LLC, of Cleveland, Ohio, offers the following information on different components of an Estate Plan.  To see what plan is best suited for your needs, contact Baron Law, LLC, Cleveland, Ohio

In a previous post, last will and testaments, guardianships, and letters of intent were explored. These documents however, only provide a partial estate plan and focus primarily on conveying one’s wishes and property in the event of death. Estate plans, at least those competently prepared, are comprehensive and should also provide guidance and instructions for critical situations during life as well.  

Who will manage my finances and investments if I am sick or incapacitated? Who will pick what doctor treats me or if a risky but potentially lifesaving procedure should be performed? What if I am put on life sustaining medical support? In what situations and for how long will I remain on such support, if I want to be on it at all? These types of issues and questions also must be addressed and accounted for by your estate plan. That is why finding and working with experienced Cleveland estate planning attorneys are so critical. These types of decisions and potential consequences for your life and well being are not things that should be done on the fly or with doctors and stressed out family members demanding a decision.  

Power of Attorney 

A will provides the instructions necessary for estate administration while trusts provide tax relief and flexibility with asset distribution, however, both primarily operate postmortem and fail to address critical issues prior to death. That is where your powers of attorney come into play. A power of attorney comes in many forms but its primary purpose is to grant authority to one or more responsible parties to handle financial or health decisions of the decedent in the event of illness or other incapacity. Life, and its associated obligations and burdens, tend to continue regardless of one’s physical or mental health. Powers of attorney are protection that ensures affairs are handled and medical wishes are followed even if you are lacking capacity in mind or body.  

 In your estate plan you will want both a financial power of attorney and a healthcare power of attorney. Both are agency agreements that grant another individual the authority to make decisions, within a certain sphere of decisions whose terms you dictate, on your behalf. A financial power of attorney, as the name suggests, grants your agent the authority to make financial decisions for you. Managing investments, buying selling land or property, representing you in business negotiations, etc. Healthcare power of attorney works the same way but with healthcare decisions. If you are incapacitated or otherwise can’t decide for yourself, your agent will decide who your doctor is, what treatment you undergo, what medication should be administered, etc.  

As always, the terms, powers, and limits for your agents are decided by you in the documents that appoint your agent. If you want to add limits on how long they are appointed, what issues they can or cannot decide, or when exactly their powers manifest, you can do so. Furthermore, you always possess the authority to dismiss them outright or appoint someone new.  

Powers of attorney are important to have because surviving spouses or family members will face difficulty and frustration gaining access to things like bank accounts and property that is in your name only. This can be especially damaging within the context of business or professional relations in which the “gears of industry” must keep moving. Alas, if an individual trusted to handle the business if something happens doesn’t possess the authority to so, significant or even fatal business consequences may result. The same goes for medical decisions, often treatment decisions must be made right there and then. Hesitation may mean permanent damage or death to you and if someone doesn’t have express authority to make those decisions, things get confusing, messy, and take a lot longer.  

If you decide not to draft one or more powers of attorney and you under up incapacitated, then in certain situations a court is forced to appoint either a guardian or conservator and the family is effectively cut off from independently managing the relevant affairs of the incapacitated family member. Further, if a court is forced to action, the entire process will take longer, cost more, be public knowledge, and is immensely more complex than it otherwise should be. Having an experienced Ohio estate planning attorney draft the appropriate POAs can avoid a lot of headache and save a lot of money down the line.  

 Living Will 

 Your living will, sometimes called a healthcare proxy, is usually paired with your healthcare power of attorney. A living will is a document that conveys your particular instructions to certain medical situations, principally impending death or prolonged terminal conditions, i.e. accepting or declining of life saving medical care. Lesser issues, such blood transfusions or non-life threatening organ or tissue transplants are covered under a healthcare power of attorney. That is why it is important to have both in effect, so all your bases are covered.   

Often estate planning clients say that they have communicated their wishes about life support, however, often how it really turns out, friends and family are unaware of an incapacitated person’s medical directives or they may choose to discount or ignore previous conversations, believing that you will pull through against all odds and medical advice. By memorializing your medical directives via a living will, medical staff will consult the document at the appropriate time and carry out the your wishes. This takes the stress of critical care decisions off the shoulders of loved ones and removes any opportunity for foul play or misinterpretation. Leaving any agency to family and friends to decide whether or not you live or die is traumatic, regardless how often and loudly say you don’t want life support.  Living wills, considering the literal life determining authority they convey are subject to strict rules regarding drafting and execution. As such, an experience Cleveland estate planning attorney must be retained.  

 HIPAA Authorization 

 This estate document is relatively straight forward and gives medical providers the authority to disclose protected medical information. The Health Insurance Portability and Accountability Act is a Federal law that established national standards on healthcare providers which protected patients’ healthcare information. Within this Act, there is are privacy rules that dictate when, how, and to who protected healthcare information may be used or disclosed. A HIPAA authorization is a form that memorializes your permission for healthcare providers to tell your friends and family what is going on with you if you are ever sick/injured and hospitalized.   

Failure to draft and properly execute this authorization can lead to serious consequences for your family and future medical treatments. Your loved ones will be stressed out if the doctors can’t tell them what is going on with you and time and money will be wasted if they also must navigate the convoluted hospital bureaucracy. Often it takes months just to get in to see a general practitioner, how long do you think it would take for multiple hospital administrators to get around you not having a HIPAA authorization filled out in advance? A little foresight and pre-planning goes a long way.     

Powers of attorney, living wills, and HIPAA authorizations combined with wills, guardianships, and letters of intent make up the lion’s share of any comprehensive estate plan. These documents alone, however, don’t adequately address all the issues and concerns people have regarding planning their estate. Questions of preferable tax treatment for estate assets, avoiding probate, and Medicaid planning, to name a few, are all things better addressed by smart use of T.O.D. designations and trust-based strategies. Planning your estate is a particularized process crafted to your needs and wants. Contact an Ohio estate planning attorney to find out the best way to plan and protect your assets and money in the event of known and unknown problems.  

You don’t have to be rich to protect what you’ve spent a lifetime trying to build. To find out whether a trust is right for your family, take the one-minute questionnaire at www.DoIneedaTrust.com. There are a number of different trusts available and the choices are infinite. With every scenario, careful consideration of every trust planning strategy should be considered for the maximum asset protection and tax savings. For more information, you can contact Dan A. Baron of Baron Law LLC at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Dan can also be reached at dan@baronlawcleveland.com 

About the author: Mike E. Benjamin, Esq.  

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.   

Disclaimer: 

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.  

 

What Is An Estate Plan, Part I – Death Documents

Baron Law LLC, of Cleveland, Ohio, offers the following information on different components of an Estate Plan.  To see what plan is best suited for your needs, contact Baron Law, LLC, Cleveland, Ohio

Estate planning is a concept that many people know about, but few fully understand. To most, planning an estate consists simply of establishing a trust or drafting a will. Granted, these are indispensable aspects but such a limited view only serves to handicap successfully preparing for impending mortality.

Aside from ensuring assets pass to heirs a comprehensive estate plan can address a innumerable issues and provide effective solutions. Estate plans may be tailored to provide consistent income for retirement, guarantee responsible individuals are in place in moments of crisis, and medical wishes are communicated and followed. At the end of the day, however, an estate plan is simply a collection of legal documents. Each legal document has a specific purpose, possesses particular advantages, legal conventions, and applicable situations. Nevertheless, most estate plans do consist of a “core” of legal documents that are often advantageous to have regardless of health or financial situation. An estate attorney will draft the documents critical for a given situation but the following is a list of the “core” legal documents that will likely make up any estate plan.

The following consists of the typical documents within a traditional estate plan and is by no means exhaustive. Estate plans are reflective of their owners and are tailored specifically to that person or couple and the needs of surviving family members and financial interests. Again, an attorney is in the best position to advise and guide you on what the major estate planning concerns are and the best legal methods to take. This part of a two-part series discusses the estate planning documents largely concerned with providing instructions in the event of death.

Last Will and Testament

A last will and testament is the document most people associate with estate planning. The will memorializes the “last wishes” of a decedent and guides surviving friends and family on how to split up an estate according to the beneficiary designations and instructions present in the document. There are many types of wills and each one is drafted uniquely for the individual and their estate.

Though wills are specifically created, all share important uses and common characteristics. Again, wills bequest particular money and assets to chosen friends and family. Further, they provide for the how and when such bequests will take place. Some instruct money only to be given on an 18th birthday or only between children of a first marriage. Of critical importance, wills are also the primary method of election of guardians for minor children or disabled familial charges and executors of the estate. The provision of guardianship, a clear plan for property distribution post death, and executor election are the primary incentives for drafting a will. Addressing all is an utmost necessity for ensuring peace of mind for those left behind.

Wills, with some exceptions, all possess the same legal conventions controlling their creation. The point of these legal rules is to ensure the legitimacy of the will, the authenticity of the last wishes evidenced by the document, and protect estates from predatory practices and opportunists. Generally, a legally operative will must be in writing, signed by testator of sound mind, and witnessed by two competent witnesses.

While most estate assets are covered under a will, some assets are not. The following are an example common asset outside of a will, also sometimes referred to as non-testamentary assets: retirement accounts, life insurance proceeds, and property owned jointly with right of survivorship. Non-testamentary assets are normally bequeathed by independent beneficiary designations within the documents of creation or on associated accounts. As such, these assets normally do not undergo probate and are available to beneficiaries much quicker than assets passed via a will and the longer probate process. Distinguishing between testamentary and non-testamentary assets can have critical tax consequences for an estate, as such, please consult an estate attorney for guidance.

Wills are a mainstay and common tool for estate planning, however, its drafting can rapidly grow in complexity due to a convoluted family structure or an expansive estate. Again, an attorney should be retained to draft a will thus ensuring last wishes are effectively communicated and legally valid within a probate court. Failure to draft a will or an improperly drafted or implemented one may result in assets going to improper parties, an undesired executor administrating an estate, irresponsible or unknown guardians for minor children, or undue legal fees and court costs.

Guardianship Designations for Minor Children

A critical concern for most people with young children is, who is going to take care of my children if I’m not here? Ensuring that financially stable friends or family willing to raise children exist affords piece of mind to parents in the event of sudden or unexpected death. Also, proactively addressing guardianship lets parents pick like-minded guardians in regards to personal, lifestyle, or religious views so surviving children are still, at least partially, raised in the manner they desire.

The easiest way to designate a guardian is to name that person or persons in the last will and testament. Then upon death, if the children are not yet 18, a probate court in most situations will appoint the named individuals as guardians according to the specified instructions. A simple will guardian designation, however, may not be convenient or appropriate in certain situations. Family compositions often change, such as in divorce or estrangement, or previously nominated guardians pass away thus negating the express wishes within a will. As such, amending or redrafting a will every time a different guardian is preferable can be time consuming and expensive.

Another way, however, exists to appoint a guardian outside of a will. An independent writing, other than a durable power of attorney, signed, witnessed, notarized, and filed with the appropriate probate court, specifying an appropriate guardian, is sufficient to convey such responsibilities. This method is relatively inexpensive and affords more flexibility to concerned parents. This independent writing method is not meant to affect any other issue or provision within a last will and testament other than appointment of guardians in the event of death. Note, an attorney will be able to resolve and watch for any potential issues regarding contradictory guardianship designations in separate estate planning documents.

Unfortunately, not everyone is blessed with a stable home life or responsible extended family. As such, proper guardian designation documentation is important and alleviates stress for parents, especially within the context of debilitating disease or deteriorating health. Further, appropriate designation avoids the involvement of child services and the courts in determining custody, eliminates the prospect of child trauma and stress upon children and concerned family during transition, and ensures surviving children have no opportunity to become wards of the state.

Letter of Intent

The aforementioned documents taken together serve to mostly illustrate and communicate a decedent’s final wishes. Everything, however, is subject to interpretation. Take the phone game most people played as children for example. A message begins at one end of a chain and, through repetitive communication and subtle shifts in language and understanding, comes out at the end completely different than how it started. A letter of intent fills in any gaps in understanding and prevents manipulation, subtle or overt, of estate instructions.

A letter of intent is a simple document that provides comprehensive instructions for what the decedent views is the most critical information and desired outcomes of an estate plan. The letter, however, is an informal document that is not legally binding upon a probate court. That being said, courts generally rely on them during probate proceedings because there is no greater authority than a decedent’s own words. After all, the entire point of probate is to distribute estate assets as close to a decedent’s intent as possible after the fact. Common instructions within a letter of intent include: guardian designations for minor children, if not detailed in a last will and testament, specific methods for bequests, the location of assets, funeral details, and the locations of estranged family members or friends chosen as beneficiaries. A decedent’s letter of intent in an additional effort to eliminate any confusion or room for interpretation within an estate plan.

Further, a letter of intent may serve as an alternative to adding on to an existing will independent of a codicil. Again, the letter itself is not legally binding like a codicil would be but it is relatively inexpensive, quick, and may serve as a viable substitute in a crunch. In Ohio, codicils are governed by strict legal conventions while letters of intent are not. As such, letters may be the document of last resort in situations of impending mortality or incapacity. As most probate judges agree, something is better than nothing. Note, however, a letter of intent is never a substitute for a will. Always consult with an attorney regarding how to best utilize a letter of intent in conjunction with other estate planning documents.

Your last will and testament, guardianship designations, and letter of intent are all critical estate planning documents, however, taken together they only offer partial protection and primarily focus on providing instructions after death. In the next part of the series the estate documents of the living will, HIPPA authorization, and healthcare and durable powers of attorney, which concentrate on providing instructions during life, are explored. Taken together, all the documents explored during this series can provide comprehensive protection for the most critical issues of both life and death.

You don’t have to be rich to protect what you’ve spent a lifetime trying to build. To find out whether a trust is right for your family, take the one-minute questionnaire at www.DoIneedaTrust.com. There are a number of different trusts available and the choices are infinite. With every scenario, careful consideration of every trust planning strategy should be considered for the maximum asset protection and tax savings.

For more information, you can contact Mike Benjamin of Baron Law LLC at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Mike can also be reached at mike@baronlawcleveland.com.

Helping You and Your Loved Ones Plan for the Future.

About the author: Mike E. Benjamin, Esq.

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.

Disclaimer:

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.