Kathryn T. Joseph & Associates, Inc.
216-245-0504

What are the pros and cons of some common trusts?

When property such as real estate, cash, stock or other assets are placed in the control of another person to hold and manage for the benefit of another, a trust has been created. The property owner is the settlor, while the person receiving the benefit is the beneficiary. A trustee manages the trust. Title to assets are transferred from the settlor to the name of the trust.

Trusts can be very complex, and are classified for tax purposes by how and when distributions are made, whether the settlor retains control over assets or income generated, and the identity of the beneficiaries.

There are many reasons for creating a trust:

  • Charitable giving
  • Reducing your estate tax burden
  • Avoiding capital gains tax upon sale of property that has increased in value
  • Controlled distribution of funds paid to specific person(s) at a specific time(s)

Generally, trusts may be used as an alternative to a Will, or to allow an individual or family more control over their assets.

Revocable Trusts

Do you want power to cancel the trust, add or remove assets or income? Flexibility to change beneficiaries? Then a revocable trust may be for you.

Benefits of revocable trusts:

  • Flexibility: assets can be transferred immediately, or delayed until occurrence of an event (like the settlor's death).
  • Avoiding probate: assets are transferred to heirs outside of probate.
  • Privacy: in contrast to a will, a trust is private. Upon death, a will is filed in probate court, so the will's terms, assets, and beneficiaries are public record.
  • Reduction of estate tax: estate administration costs after death may be reduced. When title to property changes from grantor to trust, it is beyond the reach of the probate court. It can also be used to manage the settlor's estate at death.
  • Protection and control of assets if the settlor becomes incapacitated.

Disadvantages of revocable trusts:

  • You still need a will. For example, naming a guardian for your minor children can only be done by will.
  • Trustee fees are incurred.
  • Income generated by assets held in trust are subject to income tax regardless of distribution.
  • Assets are considered when applying for Medicaid eligibility.
  • Assets are subject to creditor claims, but a court may limit this.
  • If a dispute between trustee and beneficiaries arises, a lawsuit must be filed to obtain court intervention.

Irrevocable Trusts

Irrevocable trusts are managed by the trustee, and cannot be cancelled or changed by the settlor after creation. Assets and income are beyond the reach of creditors and removed from the estate. There are substantial benefits to this, by shielding assets from taxes and creditors, in exchange for the settlor's loss of control by turning over management to an independent trustee. 

What else is out there for me?

There are many different types of trusts: 

  • Ohio Legacy Trust: requires naming an independent, qualified trustee in Ohio. Assets are exempt from creditors after 18 months if the trust is formed correctly, but exclude claims for child support, alimony or other super creditors preempted by federal law.
  • Ohio Land Trust: land held for conservation, community service or benefit.
  • Spendthrift or discretionary trusts: protects a beneficiary from themselves. The trustee has power to withhold beneficiary payments if they have legal judgments or creditor claims.
  • Testamentary trust: transfers assets into trust at the settlor's death.
  • Irrevocable life insurance trusts: remove insurance proceeds from the estate of the settlor at death.
  • Charitable remainder trusts, or split interest trusts: creates a trust upon the death of the settlor, with the non-charitable beneficiary receiving a set dollar amount or percentage during their lifetime, with the remaining amount distributed to the charity upon the non-charitable beneficiary's death.

Estate planning is very complex. To obtain complete and accurate information on which trust best suits your situation, the assistance of an experienced estate attorney is essential.

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

Toll Free: 888-335-6650
Phone: 216-245-0504
Fax: 216-765-8817
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