Other Trusts

Standalone IRA Trusts—Many rules apply when a person dies owning retirement assets, such as IRAs, 401ks, qualified annuities, etc. These rules may require the beneficiaries to withdraw the money at a faster pace than the original owner did with his or her RMDs (required minimum distributions). This often creates a situation where the asset is wasted, either by the recipient’s actions or by those of spouses, adult children, creditors or predators. By having the beneficiary be a trust, instead of a person, the trust can accept the distributions from the retirement account as required by law, but not necessarily distribute them directly to the beneficiaries of the trust. Rather the trustee can hold, invest and dole the money out over time, according to instructions in the trust agreement set forth by the trust-maker. This not only preserves the money, but allows time for more growth.

Special Needs Trusts—These types of trusts can be standalone trusts, or they can be included within one of the other types of trusts listed in this section. The purpose of these trusts is to allow a person who is qualified to receive government benefits, such as disability payments, Medicaid, or other need-based benefits, to continue to receive such benefits even if this person is named as a beneficiary of the trust. In other words, the trust will contain language that will restrict the distribution of trust assets to a special needs beneficiary if the distribution of the trust assets would serve to disqualify the person from continuing to receive the government benefits to which he or she is entitled. Without these provisions, a special needs person who receives an inheritance may be disqualified from continuing to receive his or her benefits until the inheritance has been spent and he or she attempts to re-apply for the benefits they had been receiving. With this type of trust, the special needs person can continue to receive his or her government benefits and still receive limited distributions from the trust.

Irrevocable Life Insurance Trusts (or ILITs)—There is a common misconception that life insurance proceeds are “tax free.” While it is true that the beneficiary may not pay income tax or inheritance tax on the proceeds, the benefit amount is drawn back into the deceased owner’s estate for purposes of federal estate tax! (Ohio has repealed its estate tax.) When the federal estate tax exemption was only $600,000, this was a major issue for those holding $1 million policies or higher. With the exemption now being over $5 million, it is less of an issue. But, remember, laws can always be changed. So for anyone with large life insurance policies, an ILIT can be used to remove the life insurance proceeds in your federal taxable estate, thus saving large amounts of federal estate taxes.

Charitable Remainder Trusts (or CRTs)—For people who want to give assets to a charity sometime in the future, but retain an income stream from the donated assets for their lifetimes and thereafter for their children, avoid capital gains taxes on appreciated assets, receive a present income tax deduction, and remove assets from their taxable estates at death. A phenomenal win-win-win tool for family estate planning!

Ohio Legacy Trusts—These trusts are another type of an asset protection trust that is specifically authorized by Ohio statutes. They are used most often by business owners, and professionals such as doctors, chiropractors, dentists, etc., to protect their assets from potential loss due to a malpractice or liability (tort) claims.