A unanimous Supreme Court of Ohio directed a Cleveland-based company, Sharp Estate Services, to stop marketing or selling living trusts or similar estate planning tools in Ohio.  The Court also imposed a civil penalty of more than $1 million.  Why?  Because Sharp provided legal counsel and prepared and sold legal documents without being licensed to practice law in Ohio. 

Anyone considering a living trust should use the services of a qualified, licensed attorney.  People wanting to create trust documents need the assurance that competent lawyers who are familiar with these matters are advising them and are properly preparing the necessary documents.  If you are considering a trust, be sure to work directly with a licensed Ohio attorney who will listen to your particular situation and create a trust to meet your personal needs.  One size does not fit all.

Q: Why would I  need an attorney to “fill out” a simple living trust document? 
A: Living trusts are more than filling in the blanks on a form.  They are not advisable for everyone, and an attorney experienced in estate planning issues can help you decide if a living trust is really in your best interest.  Further, if a living trust does make sense for you, a licensed Ohio attorney experienced in estate planning matters can make sure your living trust is drafted accurately and fits with your broader estate plan. 

Q: I thought everyone needed a living trust to avoid probate.  Isn’t that true?
A: It is true that assets within a living trust generally do not come under the jurisdiction of the probate court, while assets owned in an individual name that are not payable on death generally will be subject to probate.  However, you can use other methods to keep certain assets from being subject to probate.  For example, jointly owned assets with rights of survivorship are not considered probate assets.  Payable-on-death accounts such as life insurance or pension benefits, transfer-on-death registration for securities and transfer-on-death deeds for real estate also will avoid probate. 

Q: Won’t I save estate taxes with a living trust, as compared with a will?
A: No.  It is a common misconception that you can save on estate taxes with a living trust, but not with a will.  While using a living trust may avoid probate proceedings, avoiding probate does not mean avoiding estate taxes.  The assets in your living trust are part of your gross estate for estate tax purposes, just as probate assets are.  Nevertheless, both the will and the living trust, when properly written and with advice on the proper ownership of assets during your lifetime, may allow you to avoid estate taxes.

Q: Can a living trust provide any  income tax savings?
A: No. 

Q: Can I keep assets in a living trust and still qualify for Medicaid?
A: Probably not.  In most cases, trust assets are countable resources for Medicaid purposes.

Q: Why wouldn’t everyone want a living trust?
A: A living trust can be a helpful estate planning tool.  Advantages include privacy, personal control, possible cost savings after death, speed of transfer to beneficiaries, and the avoidance of multiple probate proceedings, especially when real property is owned in several different states.

There are also disadvantages.  One disadvantage is that a living trust likely will take more time and effort than a will.  Simply creating a living trust document is not enough.  You also must transfer ownership and title of your assets into the trustee’s name, which means you will have to re-register, re-title or otherwise validly transfer the assets to the trustee of the living trust.  Also, after you have created the living trust, you must make sure that assets you acquire later are placed into the living trust.  Otherwise, those assets may pass through probate. 

While a living trust may save probate expenses after your death, maintaining a living trust generally costs more than creating a will.  Also, most people still need a will to dispose of assets not included in the living trust. 

The administration of a living trust is not supervised by any court.  While this may be less complicated and expensive than going through probate, your appointed trustee will not be accountable to a judge for distributing assets honestly and accurately unless a beneficiary brings a lawsuit.

There also may be tax disadvantages.  If a living trust is in effect after you die, your trust must report to the IRS according to the calendar year, whereas an estate created from a will can establish a fiscal year.  While an estate can get a personal tax exemption of $600 per tax year, a “simple” living trust exemption is $300 and  a “complex” living trust exemption is $100.  However, if the trustee of a living trust chooses, the law allows a trust to be taxed like an estate.

Consumers still must be careful when making important legal decisions.  Do your homework.  Ask lots of questions.  And take advantage of competent legal services from licensed, experienced attorneys. 

12/11/2008

Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association (OSBA).