Kathryn T. Joseph & Associates, Inc.

Cleveland Estate Planning Blog

Using trusts for IRAs

IRAs can be bequeathed to heirs who can use the minimum distributions as they wish. However, IRA account holders in Ohio may want to use a trust as a tool to safeguard assets from beneficiaries who may have financial or behavioral issues. According to one financial advisor, a trust should be used by anyone with a sizable IRA if there are doubts about how the heir would handle the money.

Before account holders establish a trust, they should be aware that the beneficiary designations on financial accounts, including IRAs, brokerage accounts and insurance policies, overrule what is dictated in a will. If account holders want their IRA to go to a specific person, they should ensure that person is listed as the beneficiary on the account.

What to know about probate

After an individual passes, that person's estate may need to go through probate. In Ohio, estates worth $35,000 or less may be relieved from some of the administrative requirements. That number increases to $100,000 if a surviving spouse inherits all of a deceased person's assets. Probate is necessary as it allows an executor to protect and distribute assets to the intended beneficiaries.

It also provides a way for taxes or other outstanding debts to be paid. Administrative fees may be taken care of through the probate process as well. When an estate is probated, a person must be named to oversee its handling. When named in a will, that person is called an executor. If no one is named in a will, someone will be appointed by the court to fulfill this role, and he or she will be referred to as an administrator.

Things to review in an estate plan

Ohio residents who have an estate plan should review the documents regularly. In going over a will or a trust, they should take into account whether changes in tax law might affect the estate plan. Changes in assets or in the family could mean a change is needed as well. People should also consider whether their choices for executor and trustees are still appropriate.

Beneficiary designations should be reviewed. For example, if a person has divorced, the ex-spouse may need to be replaced on these forms. Beneficiary designations override a will or trust. People should also make sure that their trusts are funded and that they are using the correct estate tax domicile if they are in the process of moving or if they spend time in two different places. Property should be titled appropriately. People may want to change which spouse's name is on a given asset or make property that is a joint tenancy into a tenancy in common.

How a second marriage might change an estate plan

People in Ohio who are remarrying might want to consider how they should alter their estate plans. If it is not a first marriage for the new spouse, the first step should be to avoid entangling finances if the new spouse also has financial ties to a previous partner. Because creditors are bound by divorce agreements, commingling finances could jeopardize joint accounts.

Trusts may offer some protection. For example, a person may want to place assets in a trust if there are children from a previous marriage. Otherwise, the new spouse may get those assets if the parent dies. If the new spouse remarries, a parent's assets could be shared between that couple instead of going to the children.

Make decisions now for when you are no longer able to

One of the important components of an estate plan has to do with making decisions now about what is going to happen if you aren't able to make those decisions in the future. This is actually something that many people don't like to think about, but planning now can make life much easier for the people you leave behind when the time comes.

There are a few different things that you need to think about when you are making these components of an estate plan. Here are a few to get you started.

Writing a letter of final wishes

When preparing their will, Ohio residents may benefit from including a letter of final wishes. This non-legal document is a way for testators to express themselves to family members in a thoughtful and considerate manner. It includes information that is not typically included in a will.

When composing a LFW, it may be helpful if it is arranged into various sections. One section could pertain to the final arrangements to include how the obituary should be written, who should be informed of the death and the structure of the person's funeral service. Another section could address the testator's views reflecting some of the will's provisions, such as why assets were bequeathed to a particular heir. Testators can also use the document to express their desires regarding many personal details, from highly important matters to simple ones. This section would be an appropriate place for the online accounts, passwords, usernames and other pertinent electronic information.

Reasons to choose a trust over a will

Ohio residents may be able to meet their estate planning needs with just a will. However, it may be appropriate to include a trust in an estate plan because of the benefits that it may offer. For instance, those who have special needs children or grandchildren may use a trust to preserve assets while also retaining their eligibility for government benefits.

Individuals who wish to make the transfer of assets after their death a private matter may prefer to use a trust because assets within it may avoid probate. In addition to the added privacy, probate can be a lengthy and costly process. During probate, beneficiaries do not have access to their inheritance and the estate cannot pay its bills.

The effects of an estate tax repeal

People in Ohio who have an estate plan in place may want to review their documents to see how a potential repeal of the estate tax may affect their assets. There may be a number of changes they should make if the estate tax and/or generation-skipping tax is revoked.

Many people have estate plans that include an exemption trust that will hold the estate tax exemption amount. Many estate plans place any assets that are in excess of the exemption amount into marital trusts. There are also plans that make provisions for a gift to be placed into a multi-generation trust, which is funded using the amount allowed by the exemption for the generation-skipping tax.

How trusts may be used

There are a number of reasons that Ohio residents might want to use trusts as a component of their estate plan. In addition to avoiding probate, which is not private and can be expensive, trusts allow assets to be managed in a variety of ways both while the settlors are alive and after their death. For example, there are certain types of trusts that can protect assets from creditors. A trust might also be used to manage people's financial affairs if they do not want to actively do so.

A trust could be beneficial for a beneficiary who wishes to start a new business. The trust could be set up to provide a steady income stream to the person that cannot be touched if the business fails.

How to handle long-term care needs

Ohio residents may be able to live for 20 or 30 years after they retire thanks to advances in technology. While living longer may be a nice thought for many, it also means additional financial planning as well as planning for long-term health care needs. People of the age of 65 have a 70 percent chance of eventually needing some sort of long-term care, according to the U.S. Department of Health and Human Services.

According to a survey conducted by Genworth, the median national monthly cost for adult nursing care is $7,698. Those who choose to receive care at home should expect to pay $3,861 a month, and the costs for both are increasing. While Medicare will cover some of the costs, there may still be expenses that an individual will need to cover.

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Kathryn T. Joseph & Associates, Inc.
Executive Commons West
29425 Chagrin Blvd.
Suite 305
Cleveland, OH 44122

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Phone: 216-245-0504
Fax: 216-765-8817
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