FAQs

Will I save estate taxes with a living trust, compared with a will?: No. It is a common misconception that estate tax savings can be achieved with a living trust, but not with a Will. While use of a living trust will avoid probate proceedings, avoiding probate does not mean avoiding estate taxes. The assets in a living trust are part of a person's gross estate for estate tax purposes, just the same as probate assets. However, both the will and living trust, when properly written and with advice on the proper ownership of assets during lifetime, may include estate tax avoidance techniques that may save substantial tax dollars for the benefit of the family.

▼
Trusts

1. Will a living trust save income taxes?: No. The income of the living trust will be taxable to the grantor as if the trust did not exist for income tax purposes. Also, if the grantor is not the trustee or a co-trustee, then the living trust must obtain a separate taxpayer identification number and thereafter file annual tax returns.

2. Can I preserve assets in a living trust and still qualify for Medicaid?: No. The assets in a living trust are "countable resources" for purposes of Medicaid qualification. The assets in the living trust are treated just the same as if they were owned by the grantor.

3. Will having a living trust avoid challenges by my beneficiaries or heirs?: No. Heirs or beneficiaries can challenge the validity of a living trust on legal grounds similar to those available for challenging a will. It may be alleged that a living trust is invalid because the grantor was incompetent at the time of establishing the trust or was unduly influenced by some person to establish the trust in a particular manner. Further, although the time period for challenging the validity of a will can be limited to 4 months, there may be a much longer time period under which the validity of a living trust can be challenged. The cost of defending the validity of a will, where the executor acts in good faith, is payable from the probate estate. It is not clear under Ohio law whether similar expenses in defending the validity of a living trust would be borne by the trust assets or by the trustee personally.

4. Will I save estate taxes with a living trust, compared with a will?: No. It is a common misconception that estate tax savings can be achieved with a living trust, but not with a Will. While use of a living trust will avoid probate proceedings, avoiding probate does not mean avoiding estate taxes. The assets in a living trust are part of a person's gross estate for estate tax purposes, just the same as probate assets. However, both the will and living trust, when properly written and with advice on the proper ownership of assets during lifetime, may include estate tax avoidance techniques that may save substantial tax dollars for the benefit of the family.

5. Will a living trust protect my assets against creditors?: Creditors are entitled to reach the assets of a living trust during the grantor's lifetime. Even where the trust is irrevocable, if the transfer is made to that trust while there are unpaid creditors of the grantor, creditors can generally reach the assets of the trust. Creditors may generally reach the assets of any trust to the extent that the grantor can enforce his or her own rights to trust assets. Upon the death of the grantor, creditors of the grantor may or may not be barred from enforcing claims against a living trust, depending on the circumstances of creation and administration of the living trust. A surviving spouse may not have elective share ("forced inheritance") rights against a living trust as would be available against probate assets.

6. Will a living trust help me while I am living?: A living trust may provide a structure for the management of a person's assets. This structure could be particularly useful if the trustee has investment expertise, such as a trust company, or the trustee retains investment counsel. The asset management function of a living trust can become particularly important if the grantor becomes incompetent or is otherwise incapable of handling financial affairs. If a living trust is in place, it is not then necessary to have a guardian appointed by the probate court to administer the now incompetent grantor's assets. On the other hand, the execution of a "durable power of attorney" - a document by which an individual (the principal) gives another person (the attorney-in-fact) the power to manage the principal's assets - may also avoid the necessity of a court guardianship.

7. How are trusts classified?: Generally, a trust may be classified in two ways. It may be revocable or irrevocable A revocable trust is one in which the grantor reserves the right to revoke the trust, in whole or in part, any time he chooses to do so - but while still alive. A trust may be declared to be irrevocable from the moment the trust is created (usually, this is done for tax purposes), or it may refer to a revocable trust which becomes irrevocable at the moment of the grantor's death