Page 6 - JanuaryFebruary25 CBA Report

T YPE S O F TR U ST S
ascertainable standard, or the trustee can
have broader discretionary authority. The
trusts can also provide for a child of the
decedent to be the successor trustee or
to serve as co-trustee with the surviving
spouse, which provides oversight of how
the trust assets are distributed to or for
the benefit of the surviving spouse and
ensure that the intent of the first decedent
is carried out. After the surviving spouse’s
death, the trust provides for the remaining
assets to be distributed to the children of
the first decedent under the terms and
conditions established by the first spouse
to die.
Alternatively, some blended families
want to treat all of the children of both
spouses equally — as if they were the chil-
dren of both — but want to ensure that
the surviving spouse is not able to alter
the plan and disinherit the children of the
first spouse to die. In this case, it would
be possible to use a joint trust. The terms
of the trust should explicitly state that
the trust becomes irrevocable after one
spouse has died. The trust terms can also
explicitly state that the children of each
spouse, and their descendants, are to be
considered the children and descendants
of both spouses for purposes of dividing
the remaining assets after the surviving
spouse’s death. Again, during the life of
the surviving spouse, a child of the first
decedent can be appointed the successor
trustee or co-trustee with the surviving
spouse to provide oversight and ensure
the dispositive plan is not upended after
the first decedent’s death.
Families with Beneficiaries
with Mental Health or
Substance Abuse Issues
Sadly, many families face issues with
a family member who has a mental health
or substance abuse disorder. A concern
for such clients is that an inheritance of
any size could provide the beneficiary
the means to cause themselves substan-
tial harm. Clients in this situation often
want to provide support for the person
while preventing harm and, possibly,
maintaining the beneficiary’s eligibility
for government benefits like Medicaid.
Incorporating a trust in the estate plan
can address all of these concerns.
Families with Beneficiaries
with Creditor Issues
Creditor concerns come in many
forms. It may be clients have a child in a
“high risk” field (like a doctor or lawyer)
or it may be a child has poor financial
management skills or already has large
debts or is facing a potential bankruptcy.
In this scenario, the child’s share of the
parents’ assets can be held in a trust for the
child’s lifetime. The trustee can use trust
assets to provide support for the child, but
the trust’s spendthrift provisions protect
the assets from the child’s creditors. The
trust can also include “trust protector”
provisions designating someone with
the authority to change the terms of the
trust if needed to strengthen the creditor
protection or to terminate the trust if the
creditor protection is no longer needed.4
The “Problem Spouse”
It is reality that some clients do not
like their child’s spouse. The child’s spouse
could be a spendthrift who the clients
fear will pester their child to “waste” the
child’s inheritance. Clients may also want
to prevent a child from giving all their
inheritance to the spouse after the child’s
6 THE REPORT | January/February 2025 | CincyBar.org
REVOCABLE: For this article, a revocable trust, or “living trust,” is
a trust created by a person (called the “grantor” or “settlor”) during
the person’s lifetime. Assets can be transferred to the trust during the
grantor’s lifetime or through the grantor’s will (called a “pour-over will”)
or beneficiary designations on the grantor’s death, or a combination of
these. During the lifetime of the grantor, the trust can be amended or
revoked at any time. A revocable trust does not require probate court
oversight for distribution of the trust assets after the grantor’s death.
TESTAMENTARY: A testamentary trust is a trust created under
the terms of a person’s will, and established after the person’s death.
Unlike a revocable trust, a testamentary trust is subject to probate court
oversight. The trustee of a testamentary trust is required to report to
the probate court when the trust is established and annually until the
termination of the trust. The trustee of a testamentary trust must also
apply to the probate court for authority to make distributions from the
trust during its administration and upon termination.
INTERVIVOS: “Inter vivos” means “while alive” or “between the
living.” It is a common way to refer to a revocable trust.
JOINT: A revocable trust created by a married couple, with each spouse
being a grantor of the trust. While the scope of this article is limited
to specific examples of estate planning, trusts can be created by any
combination of people for any legal purpose.
death, preferring that the assets pass from
the child to the clients’ grandchildren (this
is actually a common goal, even if clients
do not have issues with their in-laws).
Clients often fear that a child will inherit
their money and later die, leaving all of the
inherited assets to the child’s surviving
spouse who could then remarry and have
another family to whom the spouse leaves
some or all of “the client’s money.” A life-
time trust for the clients’ child addresses
these concerns.
The clients may also want to ensure
that the inheritance will not end up being
divided in a divorce. While an inheritance
is generally not “marital property,” if an
inheritance is distributed outright and
then co-mingled with marital property, it
can be difficult to prove what was inher-
ited and could complicate the divorce
settlement.
Again, a lifetime trust for the child
after the parents’ deaths can achieve the
clients’ goal of protecting the inheritance
for their child and the child’s descendants.
The trust for the child can be as permissive
or restrictive as the client wants. The child
could even serve as trustee of the child’s
trust to achieve maximum flexibility while
still achieving the clients’ goals.