Five Things You Might Not Know About Your Revocable Trust

Little Girl Surprised by Her Revocable Trust!

More property now passes outside probate when Ohio residents die than through the probate process. This is due to the increasing popularity of so-called "will substitutes to avoid probate, including trusts, and options such as joint ownership of property and "transfer-on-death" accounts. Revocable trusts, so called because they can be revoked while the creator (settlor) is alive and has legal capacity, are probably the most popular will substitutes. There is good cause for the popularity of revocable trusts; in addition to avoiding probate (which saves time and money for beneficiaries), they are less likely to be challenged in court than a will. Significantly, if the settlor of a living trust becomes legally incapacitated, the successor trustee named in the trust instrument can step into the settlor's shoes to manage trust assets. This avoids the need for the family to go to court to appoint a guardian or conservator. If you have a trust, you may be aware of these benefits. But there are some things you might not know about your revocable trust.

For instance, if you have a trust, and later make a will disposing of trust assets, which document controls? How exactly do you revoke that "revocable" trust? What happens if a settlor divorces a beneficiary of the revocable trust? What happens if the settlor becomes legally incapacitated? Read on for the answers to these and other questions you may not have considered.

Can a Subsequent Will Revoke a Trust?

Maybe. In Ohio, if a trust provides for a means of amendment or revocation, the trust can be amended or revoked only by substantial compliance with the means provided for in the trust. So if an Ohio trust states specifically that it can be amended or revoked by a subsequent will that conflicts with the terms of the trust, it can. Otherwise, no.

But what if the trust doesn't say anything about the means of amendment or revocation, and, furthermore, the will is very specific about the testator (will-maker) intending the will to control? Sorry, too bad. According to Ohio law, if the revocable trust instrument doesn't provide for a way to revoke or amend, the settlor can revoke or amend the trust in any way that manifests "clear and convincing" evidence of their intent—except by a will or codicil.

Can an Agent Under a Power of Attorney Exercise a Settlor's Powers?

Let's say that you, like many people, have not only a living trust, but a power of attorney. Suppose then that you were to become legally incapacitated, so that your successor trustee would take over your trust and your agent under your power of attorney.

Could your agent amend your trust? Could they revoke it? Probably. In Ohio, the trustee of a revocable trust has a duty only to the settlor (not to future beneficiaries), even if the settlor is incapacitated. Ohio law also states that if a person can revoke a trust only with another person's consent, it is considered revocable if the person whose consent is necessary does not hold an adverse interest. (If that person does hold an adverse interest, the trust is not considered revocable.) Under Ohio law, the fact that an agent under a power of attorney does not, in and of itself, mean the trust cannot be revoked.

What is the Statute of Limitations for Challenging a Trust?

While trust challenges are rare, they do happen. A trust is almost never challenged while the settlor is alive, but may be when the settlor dies and the trust becomes irrevocable (since the settlor is no longer alive and could not revoke).

The statute of limitations in Ohio for challenging the validity of:

  • a trust;
  • an amendment to the trust made during the settlor's lifetime;
  • a revocation of the trust made during the settlor's lifetime; or
  • a transfer to the trust made during the settlor's lifetime

is the date that is two years after the date of the settlor's death, or the date that is six months after the trustee has given notice to a potential contestant of the trust, whichever comes first.

If Your Beneficiary Kills You, Can He or She Still Benefit From Your Trust?

Hopefully, this information won't be all that stays your beneficiary's hand against you, but the answer is no. Ohio law prevents anyone convicted of a slaying from benefiting from the death, including receiving property from the estate of the deceased or the proceeds of a life insurance policy. A court case, Evans v. Evans, in which a husband murdered his wife, affirmed that this rule against a killer benefiting from his victim's death applies to trusts as well.

What is the Effect of Divorce on a Revocable Trust?

In Ohio, gifts made to a spouse in a will that was executed before a divorce, dissolution, separation, or annulment are automatically revoked by those legal actions. What about provisions in a trust? Unhappily for ex-spouses who hoped to benefit, the same is true of trusts. A divorce, dissolution, separation, or annulment revokes gifts to a spouse in a trust made before the marriage was terminated.

That said, if you end your marriage, it is very important that you revise your estate plan as soon as possible (perhaps even before the divorce is final). While, in the final analysis, your ex-spouse might not be able to inherit from your will or receive distributions from your trust, assets you intended for your beneficiaries might get consumed in litigation over this issue. Better to make a new estate plan and remove all doubt as to what your ex is entitled to.

If you have other questions about your revocable trust, or are interested in creating, amending, or revoking a trust, contact your estate planning attorney for a consultation.

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Categories: Trusts