Trusts

  1. Definition
  2. Questions to Ask
  3. Selection of Trustee 
  4. Revocable Living Trust to Avoid Probate 
  5. Bypass/Credit shelter trust 
  6. Ohio Bypass trust 
  7. QTIP trust 
  8. Power of Appointment trust 
  9. Dynasty trust
  10. Life Insurance trust 
  11. Crummey trust 
  12. I.R.C. 2503(c) trust 
  13. Trust for disabled & incompetent person 
  14. Spendthrift trust 
  15. Standby trust 
  16. Second Marriage Trust 
  17. Charitable trusts
  18. Grantor Retained Annuity trust 
  19. Qualified Personal Residence trust 
  20. Intentionally Defective Grantor trust 
  21. Irrevocable Medicaid trust 
  22. Foreign Asset Protection Trust 
  23. Domestic Asset Protection trust 
  24. Total Return trust 
  25. Incentive trust 
  26. The Ohio Trust Code
  27. Ohio Gun Trust

A. Definition:

1. In General

Trust – a legal relationship with respect to the property where one party (the trustee) holds the property with the legal duty to manage it for the benefit of another (the beneficiary). The key distinction is that the trustee holds title to the property, but the beneficiaries are the true owners. The person who creates the trust is called the grantor, settlor, or trustor. The persons who eventually receive the principal of the trust are called the remaindermen.

Types of Trusts – there is no shortage of jargon describing the types of trusts, e.g. Bypass, Credit Shelter, Charitable Remainder, Charitable Lead, Marital, Non-Marital, Crummey, Life Insurance, Medicaid Qualifying, GRIT, etc. It is more important to understand the purpose and intention of the trust than to focus on the jargon. The important questions to ask are:

What is the purpose or objective of this Trust?

What is the grantor trying to accomplish by use of this Trust?

A testamentary trust is one that is created in a Will and is a part of the Will document. It does not come into existence until the person passes away. A living trust (AKA inter vivos trust) is one created in a separate trust document and is in existence during the life of the grantor. In general, most estate plans can use either a testamentary or living trust.

2. A Different Way to Own Your Property

A Trust is just a different way to own property. Most of us think of “ownership” as a simple matter of our absolute possession and control of a particular property. However, you are not the sole and absolute owner of many things that you think you own.

For example, if you own a house with a mortgage, the bank has certain rights in your house and you owe legal obligations to the bank. If you don’t make your mortgage payment, the bank can foreclose and evict you. If you damage or decide to not maintain the property to the extent that you diminish the property value, the bank can also foreclose. Even if you have no mortgage, the government has a right to take your house away from you for any public purpose (e.g. building a road). This is called the right of eminent domain. If your activities on your property (e.g., a pig farm) interfere with your neighbors enjoyment of their property, they may sue you on the grounds you are creating a “nuisance.” Thus, our ownership always includes certain obligations toward others who have certain rights on property that we “own”.

Some people choose to lease a car rather than to own it. The lease gives them the right to drive the car, park it in their driveway and, in general, use it just as if they owned it. Thus, they obtain the same benefits and rights as with ownership.

BACK TO TOP

Questions to ask

Trusts: The Important Questions To Ask

With the definitions of a trust in mind, let’s look at Trusts as a different way to own our property. A grantor or beneficiary can have as much or more control over the trust property as with outright ownership. Thus, use of a Trust does not necessarily mean a loss of control. You should determine what rights you have with respect to the trust property and your obligations to the trust and other persons. In fact, each person (grantor, trustee, beneficiary) involved with the trust must ask the same questions.

Grantor: 

How much control do I still have over the trust property?

Can I be the trustee?
Can I revoke the trust?
Do I have a right to request the trustee to distribute the property back to me? Are there limits on this right?
Can I fire the trustee and name a new one?
Can I amend the terms of the trust?
Can I change the remainder beneficiaries after I sign the Trust?

Beneficiary (may be the same person as Grantor):

Is the income required to be distributed to me?
Does the trustee have “discretion” to distribute or not distribute income to me?
Is income to be distributed for my “support, health, maintenance or education”?

[Same questions concerning distribution of principal]

How often is income required to be distributed?
How is the trustee investing the money?
Are the investments producing income or are they in growth stocks/funds for appreciation?
When does the trust terminate so I can get my money?

Trustee:

What are my obligations with respect to distribution of income and principal?
What are my fees?
Do I have to render an account to the beneficiaries or grantor?

Three other important tax questions must be asked of any Trust:

What are the estate tax consequences of this Trust?
What are the gift tax consequences of this Trust?
What are the income tax consequences of this Trust?

BACK TO TOP

Selection of Trustee

The trustee should possess the following characteristics:

  1. experience and ability to manage the estate;
  2. responsible and trustworthy;
  3. an interest and motivation to fulfill the duties of trustee;
  4. reside in the same area as the beneficiary of the trust. In most cases, the spouse, child or other heir is the appropriate trustee. These persons have a personal interest in the situation.

However, a bank trust department is often needed as trustee. A large, complicated estate may require the experience of a bank trustee. Also, an independent trustee is sometimes required for tax purposes.

Living Trust to Avoid Probate

Advantages:

  1. Attorneys fees for setting up a trust will generally be lower than fees for probate.
  2. The privacy of your estate will be preserved by using a living trust. The probate inventory is a public record open to inspection by anyone.
  3. Avoiding the delay of probate and immediate distribution of the estate are commonly expressed advantages. However, the trustee cannot distribute the whole estate to the heirs until estate taxes and all other debts are paid. If the trustee does so, he/she will be personally liable to pay these debts out of their own funds. However, the lack of time constraints and probate requirements will certainly be avoided and the trustee in most cases will be able to complete the administration much sooner and with less work.
  4. The cost of an executor’s fee may be avoided if an executor would have been appointed who would have charged a fee. In most situations, an heir or family member can be appointed executor on the condition that he/she serves without compensation.
  5. A guardianship proceeding in Probate Court may also be avoided. However, an inexpensive power of attorney may also accomplish this same objective.
  6. Avoidance of estate taxes is often implied as an advantage of a living trust. Although a living trust can be part of an estate plan that eliminates estate tax, this can also be accomplished with a will. Therefore, estate tax savings is clearly not an advantage of a living trust.

Disadvantages:

  1. There will be present costs to create the trust and transfer costs for putting the assets into the trust.
  2. There may be additional complications and requirements associated with everyday transactions once you have transferred title to all your assets into the trust. Banks, stock brokerage companies etc. may require various forms to be filled out, a copy of the trust and other assurances that the trustee is authorized to take certain actions. However, living trusts have become more commonplace in recent years and most companies can now handle trusts without too much complication.
  3. Upon death, the transfer to the heirs is not automatic. Various legal documents will be needed to fulfill legal requirements. An Ohio Estate Tax return must be filed for gross estates over the Ohio exemption amount. This will necessitate an appraisal of all assets. Although the administrative burden is less than probate, it is certainly not absent.
  4. The trustee is not accountable to a court and the supervision of the Probate Court is not available. Some of the functions of probate are for the executor to report to the court all receipts and disbursements, an accurate appraisal of assets, payment of bills and distribution to the heirs. If the executor misapplied some money or did not distribute according to the Will, the court would probably be aware of this and take action against the executor. A trustee of a living trust is typically not accountable in this fashion and the heirs may have no way of knowing if estate funds were misappropriated. Of course, the trust beneficiaries have a right to sue, but this will be more costly and involved as opposed to filing an appropriate motion in Probate Court.

Each person must weigh the above factors, consider your circumstances and desires, and make an informed decision.

Compared to an estate plan using POD, JTWRS account etc.., the above Trust offers the following advantages:

  1. all assets are held under one “umbrella” which simplifies management of the assets;
  2. if a change in the estate distributions is desired, the grantor only needs to amend the Trust instead of re-arranging some or all of the asset beneficiary designations;
  3. no risk of changes in account values changing the desired equal (or other proportionate) distribution to the intended heirs;
  4. the Trust can include a “spendthrift clause” which will protect any beneficiary who is sued, gets divorced, files bankruptcy or has any creditor claims against their share of the Trust.

BACK TO TOP

Bypass/Credit Shelter Trust

For a married couple with a combined estate above $5,000,000 (plus inflation adjustment), this type of trust can reduce or eliminate federal estate tax. The estate of the first spouse to die goes into the trust in an amount up to $5,000,000. There should be no federal estate tax because of the unified credit and marital deduction. When the second spouse passes away, the trust property is not taxable due to the specific terms of the trust. There will be no tax on the estate of the second spouse if it is under $5,000,000  (plus inflation adjustment) due to the exclusion amount. Without this trust arrangement, the second spouse’s estate would pay tax on the total estate to the extent that it exceeds $5,000,000.

Ohio Bypass Trust

No longer applicable on or after 1/1/2013.

BACK TO TOP

QTIP Trust

In order to qualify for a marital deduction and use a trust, certain requirements must be met. Using a QTIP trust, the following provisions are included in the trust: surviving spouse receives all the trust income, principal of trust can only be used by the surviving spouse, ultimate disposition to heirs can be fixed in the trust and not changed by surviving spouse. This trust is often called a marital trust (also known as the A trust in an AB plan) and used in combination with the Bypass trust (also known as a non-marital, family, credit shelter, or B trust). The marital trust is included in the estate for federal estate tax purposes.

Power of Appointment Trust

This is another type of trust used to qualify for the marital deduction. The surviving spouse is entitled to all income, can have the right to use principal and the right (called a general power of appointment) to name the ultimate beneficiaries upon his/her death.

BACK TO TOP

Dynasty Trust for Grandchildren

Modern trust law in many States permits a trust to exist for many generations and provide benefits to your grandchildren and their descendants or other desired beneficiaries. This type of trust can provide many benefits not possible with a typical revocable trust not the least of which is avoidance of estate tax for each generation. The trust can  be designed to encourage education or other chosen values that you desire to foster in your descendants. For example, the trust could provide for a special distribution amount as a reward when a trust beneficiary obtains a college degree, works for a charitable cause, gets married, enters a particular profession or achieves some other desirable goal. These types of incentive provisions can foster your goals to positively enhance the lives of your descendants. The trust can also provide protection in the event a beneficiary gets divorced, files bankruptcy, gets sued, has financial problems, suffers a disability or other catastrophe.

Early in the last century, a dynasty trust was a more common trust plan. A trust was set up for the benefit of the children but after the death of the parents the property remained in the trust. The children were able to receive money from the trust but when they passed away the trust was not subject to estate tax in their estates because they were not considered owners of the trust. Thus, the estate tax skipped a generation. This could not continue for successive generations beyond the grandchildren of the grantor of the trust because of a trust law known as the “rule against perpetuities.”

Congress changed the law to close this loophole in 1986 and enacted a “generation skipping tax (GST)” which applied to these type of trusts. The tax rate is a flat rate equal to the maximum estate tax rate.  Congress was generous enough to leave an exemption amount equal to the estate tax exclusion amount.  This dollar amount is exempt from this GST tax. A related legal development is that the old “rule against perpetuities” trust law has now been abolished or modified in many States to permit a trust to continue indefinitely for successive generations. Thus, a trust can be used to avoid estate taxes from one generation to another indefinitely. This type of trust is known as a “Dynasty Trust” or “Generation Skipping Trust.”

You can use a Dynasty Trust for any dollar amount up to the full extent of the GST exemption. Over a long period of time the growth of the trust investments without payment of estate taxes will be much greater than the same growth subject to tax. Let’s assume growth of one million dollars over a 100 year period. We will use a gross return of 12% and subtract 1% (trustee fees), 4%(distributions to beneficiaries), and 2%(income tax), leaving a net growth of 5%. One million dollars in a dynasty trust will grow to $131,501,260 after 100 years. The same amount outside of a dynasty trust paying estate tax every 40 years (year 40 & 80) will grow to $33,472,486 after 100 years. The dynasty trust is four times greater. The same example using $300,000 in a dynasty trust will grow to $39,450,377  after 100 years. Outside of a dynasty trust paying estate tax every 40 years (year 40 & 80) it will grow to $14,202,126  after 100 years.

In my experience talking with clients about trusts, I know that the first reaction of most clients is to be fearful of being locked into a trust or leaving your children or grandchildren in a position of not being able to exert some control over the trust and unable to receive the benefits. Fortunately, there are many ways to setup the dynasty trust to allow flexibility and control. The following are some examples of trust provisions that can leave the beneficiaries with some control: 1) A Trust Protector can be appointed in the trust who has the power to fire the trustee, terminate the trust with a full distribution, amend the trust to respond to changes in the law and other powers; this person should be someone who is independent of the beneficiary and can make wise, responsible decisions for the beneficiary. 2) Trust Advisor committees can be used to make regular decisions on trust distributions to beneficiaries instead of the trustee making this decision; this could be a group of other family members. Many other drafting techniques can be incorporated to give the beneficiaries control to adapt the trust to changing circumstances.

A trust should not be thought of as a restrictive arrangement. Rather, it should be viewed as a positive way to continue your influence to better the lives of your descendants for generations to come.  Leaving an outright inheritance to someone is not always what is  best for a person. Certainly if a person has problems, such as drugs or alcohol, the receipt of an inheritance will not only result in the money being wasted but most likely this person will get into more trouble. More importantly, for your family members with no special problems, the money can encourage and reward them to pursue education and other worthwhile goals as you determine in the specific provisions of your dynasty trust.

In considering a dynasty trust for your estate plan you should realize that you do not have to use this as the sole method for all of your estate distribution. You may choose to leave a percentage of your estate to your beneficiaries outright (e.g. 70%) but then leave the rest (30%) in a dynasty trust.

The Dynasty Trust can be a positive influence on your descendants that will enhance their lives and protect them from financial catastrophes.

BACK TO TOP

Irrevocable Life Insurance Trust

Contrary to popular belief, life insurance is subject to federal estate tax if:

  1. the estate is the beneficiary of the policy; this occurs frequently when the named beneficiary has predeceased the policy owner and no designation was made for a contingent beneficiary;
  2. or, the deceased had any “incidents of ownership” in the policy such as the right to change the beneficiary, right to borrow on the policy, or to cancel the policy; unless some estate planning was done most policies give the insured these incidents of ownership and, thus, are taxable.

An Irrevocable Life Insurance Trust can be created to avoid estate taxation of the policy. One of the requirements is that ownership be transferred to the trust.

Crummey Trust

A “Crummey Trust” is commonly used in connection with the Irrevocable Life Insurance Trust. The Crummey clause allows the transfers to the trust to pay premiums to qualify for the annual gift tax exclusion. Generally, transfers to a trust do not qualify for the annual gift tax exclusion. The name derives from a Court case in which the Court permitted the annual gift tax exclusion under this clause.

BACK TO TOP

I.R.C. 2503(c) Trust

A special provision of the Internal Revenue Code allows a gift to a trust meeting certain qualifications to qualify for the annual tax-free gift exclusion. In general, a gift to a trust does not qualify for the annual exclusion. The trust must be for the benefit of a minor under age 21 and must be distributed in full upon the minor reaching age 21. The trust may have a provision allowing the beneficiary at age 21 to choose to continue the trust beyond such time as provided in the trust. Once this choice is made, it cannot be changed unless provided for in the trust. Of course, the beneficiary may choose to receive a full distribution at age 21 and cannot be forced to continue the trust.

Trust for a Disabled, Incapacitated or Incompetent Heir

A very common reason for creating a trust is that a potential heir is disabled or mentally incompetent. The trust is set up so that the income and principal are applied to pay the person’s bills and a responsible trustee is appointed to carry out these duties. Similarly, a trust could also be created for a child or spouse who is irresponsible in handling money.

Spendthrift

A spendthrift trust provides that the beneficiary’s ownership interest in the trust is protected from creditors who may attempt to collect debts or claims from the trust. This is a common provision in other types of trusts.

BACK TO TOP

Standby Trust

This trust is used to plan for possible incompetency. A revocable living trust is created but no property is transferred into it. When the grantor becomes incompetent, the trust becomes operative and another person, under authority of a power of attorney, transfers the estate to the trust. The trustee can then manage the estate without the need for a guardianship.

Trust to Protect Estate from Claims of a Second Spouse; Second Marriage Trust

Under Ohio law a spouse has a right to one-third to one-half of their deceased spouse’s estate even if the will leaves them nothing. Therefore, if a widow remarries, his/her new spouse would be entitled to a part of his/her estate to the exclusion of his/her children from his/her prior marriage or other intended beneficiaries. One way to plan for this problem is to create one or more trusts so that when the first spouse passes away the estate will be protected in the trusts. Similar planning can also protect children’s inheritance from the claims of their spouse in the event of a divorce.

BACK TO TOP

Charitable Trusts

Persons that have a desire to make a gift to a charity can do so by using a trust and obtaining substantial tax breaks. For example, a charitable remainder unitrust can be created where you make a present gift to the trust for the benefit of a charity. You would receive the income from the trust during your lifetime and then, upon your death, the principal would be distributed from the trust to the charity. The tax advantages of this technique are: 1) income tax deduction on your personal tax return for the value of the gift; 2) no capital gains tax on the property transferred to the trust; 3) the trust is exempt from income tax; 4) no estate tax on the property in trust.

Grantor Retained Annuity Trust (GRAT)

  1. The grantor transfers property into an irrevocable trust and reserves the right to income for a period of years (e.g., ten years). This type of trust is considered to have two separate legal interests: an income interest which is the present value of the income to be paid;
  2. a remainder interest which is the present value of the amount of principal expected to remain upon the death of the owner of the grantor. The relative values of these two interests depends on the income earnings and the date of death of the grantor. These factors are calculated based upon life expectancy and interest rate tables published by the IRS. The transfer of property to the trust upon creation is a taxable gift and there is a gift tax on the value of the remainder interest at the time of this initial transfer. After the term of years passes and the grantor is still alive, the remaining trust property is transferred directly to the remaindermen (e.g., children of grantor). The property will not be included in the grantor’s estate. However, if the grantor dies before the end of the term, then the full amount will be subject to estate tax.

A GRAT pays a fixed dollar amount each year as the income distribution to the grantor. A GRUT pays a fixed percentage of the value of the trust which is re-determined annually. The annuity payout percentage is determined by IRS tables. If the actual income of the trust does not exceed the IRS required annuity amount, then the payout will equal or exceed the amount of principal and there could be nothing left at the end of the trust term.

Example: A 60 year old grantor gives $1,000,000 worth of investment securities to a GRAT, retaining for 10 years the right to an annual payment of $149,291 each year. The trust investments produce an annual return of 13%. The required IRS rate is 8% on the date the trust is created. The value of the remainder interest and thus the taxable gift is $64,267. After ten years, the trust terminates and the remaining principal of $490,576 is paid to the children or other remainder beneficiaries. The grantor has transferred $490,576 out of his/her estate but for gift tax purposes only $64,267 is considered to have been transferred out of the estate. However, if the grantor passes away before the end of the ten year term, the full value of the trust is subject to estate tax. If the grantor did not earn 13%, then the value remaining for the children or other remainder beneficiaries would be less than $490,576.

BACK TO TOP

Qualified Personal Residence Trust

The creation of a qualified personal residence trust (QPRT) involves an irrevocable gift in trust of the grantor’s personal residence, with the grantor retaining the right to use the residence for a specified number of years, and designating one of more beneficiaries to receive the residence after this term. Rules similar to the GRAT rules discussed above apply to the QPRT. The advantage of this gift is that it removes any future appreciation after the date of the gift from the estate. At the end of the term, the grantor is no longer the owner and must move out or pay rent to the owner (i.e., the beneficiaries-children). This rent would be taxable income to the beneficiaries with no deduction for the grantor.

Intentionally Defective Grantor Trust

This is a trust that is funded with transfers that are completed gifts for gift tax purposes but is still considered a “grantor trust” under the income tax rules applicable to trusts. Thus, the grantor of the trust continues to pay income tax on income of the trust. This may not seem like a good idea but, in effect, the grantor by paying any income tax liability of the trust, is making a tax-free gift to the beneficiaries of the trust. The amount paid for income taxes reduces the estate for estate tax purposes at no gift tax cost.

A sale of an appreciated asset to this trust will also result in no income tax liability on the capital gain and the asset is removed from the grantors estate for estate tax purposes.

BACK TO TOP

Irrevocable Medicaid Trust

Medicare and Medicare supplemental policies do not pay for custodial care in a nursing home. Medicaid does pay for those whose financial resources are below the required limits. In order to qualify for Medicaid and avoid liquidating your own estate to pay for a nursing home, a trust arrangement can be set up. The trust must be irrevocable, the grantors should not be trustees, and the grantors have no access to principal but do receive income. The common form of a Revocable Living Trust would not work. A Revocable Living Trust is a fully countable asset under Medicaid law.

Foreign Asset Protection Trust (FAPT) AKA Offshore Trust

A Foreign Asset Protection Trust (FAPT), also known as an Offshore Trust, is a trust created under the trust laws of a foreign country and administered by a trustee located in that country. This type of trust is used for the following reasons:
a)Asset Protection
Property held in a FAPT cannot be taken by a U.S. creditor. The laws of these countries provide a variety of legal obstacles to prevent enforcement of a judgment against the Settlor of the Trust with respect to assets in the FAPT.
b)Investment Opportunities
There are many investment opportunities available in the international marketplace that are not available in the United States because of burdensome SEC requirements and restrictions. The sophisticated international banks operating in these offshore financial centers (OFC) provide access to these opportunities.
c)Privacy
Offshore jurisdictions provide by law that disclosure of any trust information to a foreign government (i.e., United States) or any other organization or person is prohibited. Thus, you can expect greater privacy of your affairs than with a U.S. trust.
d)Tax Savings ?
A FAPT does not provide any exemption or savings from U.S. income, estate or gift taxes. A FAPT does not provide any exemption or savings from U.S. income, estate or gift taxes.

Income you receive from the FAPT is subject to U.S. income tax. Do not be misled by promises of secrecy of the FAPT. There are U.S. tax reporting requirements and other procedures designed to ensure reporting of income. There have been successful criminal prosecutions by the IRS of persons who did not report income from a FAPT.

Currently the most popular countries are: Bahamas, Bermuda, Cayman Islands, Channel Islands (Jersey and Guernsey), Cook Islands, Gibraltar, Isle of Man, Liechtenstein, and the Turks and Caicos Islands. Each country has various pros and cons which must be considered in depth by you and the U.S. counsel. This is one of the most important roles of the person’s attorney in the creation of the FAPT.

BACK TO TOP

Domestic Asset Protection Trust

Certain States have enacted trust laws authorizing creation of a trust under their State trust laws similar to an offshore trust. These States are: Ohio, Alaska, Delaware, Nevada, Rhode Island, Utah, South Dakota, Missouri, Oklahoma, Tennessee, Wyoming and New Hampshire. In general, these state laws allow a person to create a trust which provides protection from creditor claims. Property transferred to this trust cannot be seized by creditors. The grantor can not have a right to receive income. However, the trustee can have discretion to distribute income to the grantor. There are numerous exceptions allowing certain creditors under certain circumstances to reach the trust and there are variations between the laws of each of said States. This Domestic Asset Protection Trust may seem less risky than an offshore trust since it is still within the U.S. However, being within the U.S. legal system may subject you to less asset protection.

Total Return Trust

This trust does not provide for distribution to beneficiaries based upon a determination of income or principal. Instead, the trust provides for a payout of a specified percentage of the total value of the trust at the end of each year. For example, the trust may pay 4% of the trust assets each year to the current income beneficiary. This provides a balance among the income and remainder beneficiaries. In addition, the income beneficiary will benefit as the value of the portfolio increases and therefore increases the income.

BACK TO TOP

Incentive Trust

Incentive trusts include provisions that seek to affect a beneficiary’s behavior by conditioning the distribution of their share of the trust estate on the beneficiary’s displaying the desired behavior. Such provisions can be designed to encourage particular achievements (e.g., graduating from college), discourage certain activities or associations (marrying outside a certain religion, cult activity), address specific behavioral problems (e.g., alcohol or drug abuse) or reflect general goals (e.g., gainful employment).

The Ohio Trust Code

The State of Ohio enacted The Ohio Trust Code (“OTC”) effective on 1/1/2007. This is a new comprehensive statute setting forth all provisions of trust law and replaces existing law. It applies to all trusts whether signed before or after 1/1/07.

This code was drafted by the National Conference of Commissioners on Uniform State Laws. This organization drafts and promotes uniform laws for adoption by the States. The purpose of this group is to have experts in various fields of law draft better laws and to promote uniformity among all the States. In the process of adoption in Ohio, there were numerous changes and variations made to the original Uniform Trust Code. Prior to adoption of the OTC, the law of trusts was derived from the common law. In other words, the body of case law developed over hundreds of years was the basis of the law. There was also a hodgepodge of various Ohio statutes governing certain trust issues. However this was not a comprehensive set of statutes as we have now in the OTC.

Most provisions of the OTC state default rules that apply if the trust instrument does not cover a specific question or issue. However, with some exceptions, the trust can usually set forth its own rule or provision contrary to the code. There are a few exceptions that apply even if the trust states otherwise. For example, a beneficiary of an irrevocable trust can request a report from the trustee and a trustee of an irrevocable trust is required to give a notice of his/her acceptance as trustee within 60 days to all beneficiaries age 25 or older. A trust may not alter or waive these rights of a beneficiary. Please keep in mind that a revocable living trust that is revocable during the lifetime of the grantor becomes an irrevocable trust after the death of the grantor.

The OTC adds a new provision permitting a trust to be created for the benefit of an animal. Previously, this was not authorized under Ohio law. There is a new provision setting forth a procedure for certification of a trust document. Hopefully, this can be used for banks and other financial institutions that sometimes demand a complete copy of the trust. The certification should be sufficient for their requirements.

This enactment of this new trust code raises the question of whether persons with existing trusts need to amend or replace their trust documents. This is a difficult question to answer simply “yes” or “no.” Persons with a typical revocable living trust set up for the purpose of avoiding probate probably will not need to make any changes to their trust. However, a person with a more complicated or special type of trust such as an A-B trust, special needs trust etc.. may need to make some changes. The only way to be certain is to have an attorney review the document and advise accordingly.
In conclusion, the enactment of the OTC is a positive development by providing a comprehensive law setting forth rights and obligations related to trusts.

Ohio Gun Trust

The ATF’s new regulations governing registration of class III firearms went into effect July 13, 2016. The primary change was to eliminate the CLEO (chief law enforcement officer)  certification of the application.  Instead, there is now only a notice requirement to the CLEO. Prior to submission of the application, notice of the application must be sent to the CLEO.

The application must be filed by the responsible person related to any particular entity such as a trust. This is generally the trustee or trustees of the trust. For each trustee, the following information must be submitted along with the application: photograph, fingerprint card, and copy of the trust. A beneficiary of the trust should not normally be considered a responsible person under the rule. However, the trust must be carefully drafted to avoid granting the beneficiary any rights or powers that could cause the beneficiary to be considered a responsible person. If this is done, then the beneficiary, even though they are not a trustee,  would be required to submit their information along with the application.

Gun owners who purchase certain firearms regulated by the  National Firearms Act (“NFA”) may own the firearms through use of a gun trust also known as a Firearms Trust, NFA Trust, Title II Trust or Class 3 Trust. Anyone who purchases NFA firearms must register them with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). The NFA requirements only apply to certain firearms such as short-barrel shotguns (barrel less than 18″), certain rifles (barrel less than 16″), machine guns, silencers, destructive devices, explosive devices, large caliber weapons, rocket launchers, canons and “any other weapon” subject to NFA regulation.

The benefits of an Ohio Gun Trust purchasing and owning the firearms are:

1) legally permitting other persons (as named trust beneficiaries) to share use of the firearms without violation of the NFA. An NFA firearm registered to an individual can only be used or possessed by that individual.
2) retaining privacy of your gun ownership and avoiding public probate administration of your estate when you pass away.
3) facilitate passing on the ownership and use to other family members
4) possible retention of NFA firearms in the trust protecting your Second Amendment rights to bear arms in the event of future gun control legislation that might restrict or prohibit further sale or transfer of such weapons.

However, even if a gun trust is used, the Settlor, Trustee and all beneficiaries who may use guns registered in the name of the trust, must not be prohibited by law from possessing or owning any firearms or other property that is expected to be part of the Trust Estate. Any use or possession by such persons could result in criminal prosecution of that person and the Settlor or Trustee.

It is important that the Ohio Gun Trust be drafted to comply with the NFA, State of Ohio and local firearms laws and be a valid trust under Ohio law. The trust should also be coordinated with your estate plan in order to provide for the continued use and possession of your NFA firearms by your family or other intended beneficiaries after you have passed away.  As a certified trust specialist, I can draft this Ohio Gun Trust with all required legal provisions and coordinate this with your estate plan. .

BACK TO TOP

© 2015 Michael Millonig, LLC