» Trusts

What to Do When a Beneficiary is Living “Off the Grid”

These days, it seems you can find people, even those you haven’t seen in years, in a matter of moments. A quick internet search can find that long-lost friend or second cousin, yielding social media accounts, emails, phone numbers and even physical addresses. It may feel as if it is impossible to escape the sticky tendrils of the aptly-named “world-wide web.” Even in death, digitized Social Security death records, ancestry sites, and websites like findagrave.com mark a person’s existence and passing.

Most people, when creating or updating a trust, don’t anticipate the possibility that one of their beneficiaries will simply disappear without a trace. Yet this very outcome happens with disturbing frequency. Online trails may go cold, and there may be no conclusive evidence that a beneficiary has died. What happens to a trust when a beneficiary is living off the grid, or perhaps not living at all?

How Does a Beneficiary Disappear?

It may seem impossible that someone who is the beneficiary of a trust would walk away from thousands or hundreds of thousands of dollars,… Read More

What Happens if There’s a Mistake in a Will (or Trust?)

People end up in court all the time because of a mistake or ambiguity in a document; one party interpreted a phrase as meaning one thing, another interpreted it differently. The court needs to decide which interpretation is correct. Or the document itself may be inconsistent, and it falls to the court to decide what was intended.

The need to interpret (and sometimes reform) a document often happens in the context of a contract dispute. But it also occurs with wills and trusts. How do Ohio courts address these mistakes or ambiguities?

Mistakes and Patent and Latent Ambiguities in Wills

To answer this question, we have to talk about the kinds of mistakes and ambiguities that arise. First, there are what lawyers call “patent ambiguities.” These are ambiguities that are obvious just from reading the document. For example, “I bequeath to my brother Daniel the sum of fifty thousand dollars ($5,000)” is patently ambiguous. Does the person making the will (the testator) mean the amount that is spelled out, or the numerical amount, which is different?

Then there are so-called “latent ambiguities.” These are statements that make sense on their fac… Read More

What Does “Health, Education, Maintenance, and Support” Mean for a Trustee?

Trustees given the responsibility of administering a trust know that their rights and responsibilities are determined by the trust instrument, and by state law. Many trusts are “discretionary” trusts, which means that distributions are made in the trustee’s discretion, often for the “health, education, maintenance and support” of one or more beneficiaries. This standard is referenced in the Internal Revenue Code section 2041(b)(1)(A), and many creators of trusts (settlors) appreciate this standard for distributions because it helps to avoid the risk of transfer taxes. Other trusts are "wholly discretionary" and provide maximum asset protection for beneficiaries. But what does “health, education, maintenance, and support” mean in terms of making trust distributions?

The answer to that question depends in part on how much discretion the trust instrument gives to the trustee. As a general rule, a trustee must exercise the discretionary power to make distributions Read More

What Does it Mean to Decant a Trust?

We have received a number of questions recently about trust decanting. What is it? Whom does it benefit? When is it a good idea? And just what does it mean to “decant” a trust?

Decanting a trust is done for the same reason you might decant a bottle of vintage wine: to leave something undesirable behind in the old container, while preserving the good in a new one. In the case of wine, what is left behind is residue in an old bottle. In the case of a trust, what is left behind is outdated or unhelpful provisions from the original trust instrument.

Trust decanting is generally done with irrevocable trusts, which are, as the name implies, difficult to amend or revoke. Not all states allow trusts to be decanted, but Ohio is one of about 25 that does. Of course, state law regarding trust decanting must be followed.

How Can a Trust Be Decanted?

In a nutshell, if a trustee has the authority to make distributions for the benefit of certain beneficiaries, he or she can make distributions in further trust for the benefit of those same beneficiaries. Under Ohio law, a trustee may have absolute power to make distributions of principal from the original tru… Read More

When is Removing a Trustee Not Removing a Trustee?

Removing the trustee of an Ohio trust is not something to be done lightly, for good reason. The creator of a trust (settlor) selected a successor trustee he or she had faith in to administer the trust as the settlor intended. Therefore, the Ohio Trust Code (Section 5807.06(B) ) only permits the removal of a trustee by a court if the trustee has committed a serious breach of trust; if there are co-trustees who cannot cooperate to administer the trust; or if the trustee is unfit or unwilling to administer the trust effectively, or has failed to do so. So, even if the beneficiaries do not like a choice of trustee, an Ohio court will respect the settlor’s appointment of a trustee. But when is removing a trustee not removing a trustee?

The answer is before the successor trustee has stepped into that role. A successor trustee, by definition, does not become the trustee immediately: he, she, or it succeeds the settlor or initial trustee. (We say, “he, she, or it” because a successor trustee may be an organization like a bank. as well as a person.)

A typical setup is that a settlor creates a trust and serves as trustee during his or her lifetime. After the settlor… Read More

Protect Your Will and Trust From Challenges

A court challenge to a will or trust is something no one wants, but few people actively try to avoid. If your last will and testament, or your trust, are challenged after your death, it can be devastating on many levels. As you might expect, such a challenge is usually time-consuming and costly. But even more important to many people, will and trust contests can lead to permanent rifts in a family. Even if the financial outcome is what the person making the will or trust intended, the personal fallout may not be able to be repaired. Fortunately, Ohio now offers a new tool to protect your will and trust from challenges.

In March 2019, testators (creators of wills) and settlors (creators of trusts) will have the opportunity to have their wills and trusts declared valid before their deaths, a process called ante-mortem procedure. This process is not entirely new; Ohio residents have had the ability to have their wills declared valid during their lifetimes for years. However, the prior statute did not include the opportunity to valid… Read More

Abatement of Legacies: What Does it Mean?

Most of the time, when someone leaves a will, their assets are distributed according to the terms of the will, after all of the debts of the estate are settled. Occasionally, though, a last will and testament will make bequests that just cannot be fulfilled; there are not enough assets left in the estate. When that happens, who gets shortchanged? Do some heirs receive their entire bequest, while others get little or none of what was "left" to them? Abatement of legacies is the law of who gets what, and how any shortfalls are handled.

Why would abatement of legacies be necessary? Who would leave their heirs assets that they didn't have? Most people don't intend to do that, of course. But the reality is that the value of an estate can go up and down between the time a will is written and the time it becomes necessary to distribute assets. In addition, estate debts can be higher than anticipated, particularly if the last illness of the deceased person incurred significant medical bills.

Put simply, there are often the same number of people at the table, but the size of the pie is smaller. The question then becomes: how is the pie divided? Do some people leave the tabl… Read More

Six Years In: Ohio Domestic Asset Protection Trusts

Just over six years ago, on December 20, 2012, Governor John Kasich signed into law the Ohio Asset Management Modernization Act of 2012 (AMMA). AMMA, which took effect in March of 2013, has been described as “a quiet revolution in Ohio law.” The law put in place a number of changes regarding the management of property, many of which served to limit the rights of creditors against Ohio residents and asset holders. Perhaps the most significant of these was the new ability to create an Ohio domestic asset protection trust (DAPT). Domestic asset protection trusts are available in seventeen states. What exactly is a DAPT, and what distinguishes it from other types of trusts?

A DAPT is an irrevocable self-settled trust, of which the creator (known as the settlor or grantor) is permitted to be a beneficiary, and may be the primary beneficiary. In addition, the trust is structured so that the settlor is given access to funds in the trust. A properly-drafted DAPT also has a feature that lends it its name: creditors of the settlor are unable to reach the assets in the trust. It is noteworthy that the trust only protects assets from possible future creditors. A settlor cannot pl… Read More

QTIP Trusts for Second Marriages

Second marriages can open a new and joyful chapter in life, especially after a bitter divorce or the pain of a first spouse’s death. Unlike a first marriage, in which your whole future lies ahead, by the time you arrive at the threshold of your second marriage, you have some history. That history often includes children from the first marriage. Your children are an important part of your life, and you want to continue planning for their futures, even as you embark on your own with a new spouse. The tension between these—the desire to leave a legacy for your children while also providing for your spouse—can complicate estate planning. This is why estate planning professionals sometimes recommend QTIP trusts for second marriages.

A QTIP, or Qualified Terminable Interest Property trust, is authorized by language in Internal Revenue Code Sections 2056(b)(7) and 2523(f). What can a QTIP trust do for you and your family? It can prevent unintended outcomes in the event of your remarriage an… Read More

Changing a Trust for the Benefit of Disabled Beneficiaries

An increasingly common estate planning practice is the establishment of a revocable living trust in which the creator (settlor) is also both the trustee and the beneficiary during his or her lifetime. After the settlor’s death the trust, which was revocable during the settlor’s life, becomes irrevocable, and a successor trustee takes over, distributing or managing the trust for the benefit of one or more beneficiaries. What happens when one of those beneficiaries is disabled? More and more, we are receiving questions about changing a trust for the benefit of disabled beneficiaries.

The potential problem is that the trust may include language dictating that the disabled beneficiary’s share of the trust be held in trust for his or her lifetime, and that distributions be made according to a particular standard, such as for “health, maintenance, education, and support.” If, like many disabled individuals in Ohio, the beneficiary needs Medicaid benefits, will the trust interfere with his or her ability to qualify for benefits?

Medicaid in Ohio is administered by county offices of the Ohio Department of Jobs and Family Services (ODJFS). ODJFS is likely to find… Read More