One of the most flexible tools in estate planning is a trust. A trust can protect assets from creditors and estate taxes. A trust can protect the decedent’s privacy. A trust can make sure someone who cannot take care of himself has the means necessary to maintain a decent standard of living. A trust may not be able to make you a grilled cheese, but it can make sure someone makes it for you.
This flexibility in purpose makes it all the more important that a trust be drafted well, that it follow accepted practices and specific Ohio laws. For example, it may look as if all the work happens up front for the grantor (the person who establishes the trust). Assets are gathered, a trustee is identified, beneficiaries are named and everything is written down and signed. It is easy to assume that, once the trust is in place, the grantor can just sit back and watch.
That is only true of an irrevocable trust, though. Once that trust is executed, it cannot be changed. A revocable trust, however, is a different thing altogether.
A trust is technically a document that authorizes a person or entity (the trustee) to hold onto and to manage a grantor’s assets for the benefit of another (the beneficiary). The grantor may be the trustee, and the grantor may be the beneficiary. The key to the trust is that the assets are held and distributed according to the terms of the trust.
Ohio law dictates that someone who is able to make a will is also able to establish a trust. That means the grantor must be at least 18 years old, of sound mind and memory and not the victim of undue influence. If all of these conditions are met, the grantor is said to have the capacity to establish the trust.
An irrevocable trust cannot be altered. Once it is executed, the grantor cannot change the terms of the trust or withdraw funds at will. The trustee is bound by the trust agreement alone. Capacity, then, is only important at the beginning of the process.
A revocable trust, however, is not permanent. The grantor is allowed to amend the terms, even to dissolve a revocable trust — but only if the grantor has capacity at the time of the amendment. Because the grantor has the sole power to amend the trust, upon his death the trust becomes irrevocable.
Why choose revocable over irrevocable? That’s a decision the grantor should make with his estate planning attorney.
Source: Ohio Elder Law, Chapter 11: Trusts, Margaret H. Kreiner and Bradford S. Carlton, September 2014 via Westlaw