Beachwood Estate Planning and Elder Law Blog

Qualified personal residence trusts and estate planning

While federal estate and gift tax exemptions are fairly generous, Ohio residents may still wish to approach them cautiously when developing their estate plans. Residential real estate values fell sharply following the 2008 financial crisis, but property prices have since rebounded. Most homes in Ohio and around the country are worth far less than the current estate tax exemption, but this situation may not persist in fast-growing markets or during speculative bubbles. Congress may also choose to lower these exemptions.

Testators who wish to enjoy their homes while protecting their heirs from possible future estate taxes sometimes choose to place their residences into qualified personal residence trusts. Setting up a QPRT reduces the size of an estate for tax purposes while allowing property owners to continue to live in their homes. Once the QPRT has been set up, the property concerned and any future appreciation will no longer be subject to federal estate taxes.

Estate planning for entrepreneurs

Ohio entrepreneurs may want to take steps to protect their business and loved ones in case of their own death. A survey of 500 entrepreneurs found that only 20 percent had a financial power of attorney and over two-thirds did not have a will. Only 13 percent had created a living trust, and nearly two-thirds of entrepreneurs said they had done no estate planning work at all.

An estate plan is in many ways a succession plan. It can set forth what will happen to a person's business and personal assets when the person dies or if the person becomes incapacitated. A financial power of attorney is important in case the latter occurs. It chooses someone who can make financial decisions including decisions about insurance, business operations, and tax issues.

Reaching financial goals with an irrevocable trust

The organization of assets to prevent tax losses and provide the most legal protection for heirs is not an intuitive process for Ohio residents. The tools of estate planning all offer definite benefits, but some will be more useful than others in accomplishing specific goals. The irrevocable trust is worth investigating for anyone who is considering or already established an estate plan. Depending on the type, trust instruments can go into effect immediately and begin providing benefits per instructions.

In the case of an irrevocable trust, the trust cannot be altered after it is funded, which is reason enough for careful planning. In essence, this is the creation of a separate entity that is given property by the benefactor. An irrevocable trust can be used to remove a portion of the benefactor's taxable estate prior to death and ensure that appreciation of the assets is not included in the taxable estate.

Protecting assets in an irrevocable trust

For many Ohio residents, being able to provide for their families is one of their top priorities. However, they may want to have some sort of control over how the assets they spent a lifetime obtaining are used. One option is to put those assets in an irrevocable trust. While irrevocable trusts do have certain advantages over other types of trusts, such as substantial tax savings, there are some limitations that must be considered.

Irrevocable trusts are very similar to revocable trusts in that a person creates the trust and puts assets or property in that trust. The major difference is that, once an irrevocable trust is created, the terms cannot be changed. In contrast, revocable trusts allow for a change in the terms and the trust can be terminated at will. By putting assets in an irrevocable trust, however, taxes may be substantially less.

The importance of signing up for Medicare Part B promptly

While Ohio residents generally sign up for Medicare Part A coverage when they reach the age of 65, many put off signing up for Part B benefits while they are still working and covered by health insurance provided by their employers. However, they may be wise to act quickly when they do leave their jobs. This is because failing to sign up for Medicare Part B benefits within eight months of retiring can lead to a lifetime penalty and possibly expensive gaps in coverage.

The Social Security Administration requires time to process Medicare Part B applications, and most experts suggest that retirees visit their nearest SSA office or mail their applications at least two months before the eight-month deadline. In addition to completing two SSA forms, retirees must provide proof of the coverage they received while working. This is why Medicare Part B applications cannot be completed online. Retirees who have held several jobs will require proof of coverage from each of their former employers.

IRS temporarily softens portability election rules

Ohio residents may be aware that the unused portion of a deceased individual's federal estate tax exemption can be used by their surviving spouse, but they may not be aware that the strict paperwork required to obtain an extension for what is known as a portability election has led to the Internal Revenue Service being inundated with requests from executors. This soon developed into a major problem for the cash-strapped federal agency, and it announced in June that it would be addressing the issue by temporarily softening the rules dealing with portability election extensions.

Before the temporary procedural change was announced, executors who had not filed timely portability elections were required to pay a user fee, submit a request letter and then wait for the IRS to respond. Under the new rules, a deceased spouse's unused estate tax exemption is made available immediately after a properly completed Form 706 has been filed. However, this easing of the rules is designed to clear an administrative backlog and not make life easier for taxpayers, and executors should be aware that the former regulations will go back into effect on Jan. 2, 2018.

The importance of updating a power of attorney

An important part of an Ohio estate plan is keeping it updated. This is important not just with the will but with all documents including powers of attorney. Both changes in the family and changes in the law may result in a power of attorney that needs to be revised. For example, in 1993, the Uniform Health-Care Decisions Act was approved. It has added a number of authorities to the medical power of attorney including approving admission, approving organ donation and making decisions around life-saving procedures.

A medical POA needs to contain language about the Health Insurance Portability and Accountability Act. This law was passed by Congress in 1996, and it deals with giving someone the right to access another person's medical information. In 2006, the Uniform Power of Attorney Act was adopted. This deals with financial POAs and requires them to state that specific powers are being given such as the ability to make changes to a trust or to change beneficiaries.

How an IRA trust can protect retirement assets

Although the Supreme Court ruled in 2014 that inherited IRAs are not protected from creditors, Ohio is one of the few states that has passed a law that says otherwise. However, a person who is creating an estate plan might still be concerned about passing down a retirement account to an irresponsible family member. An IRA trust can protect these assets. When the money goes into a trust, a trustee controls how and when the heir can access the funds. Retirement plans such as 401(k)s have different rules from IRAs, but an IRA trust can still be the beneficiary of these types of plans too.

Because there are expenses associated with trusts, there are two factors to consider in deciding whether this is the best choice. How much the account is worth is one. The other is the age and situation of the heir. For example, a person who inherits a large sum of money at 18 or 21 might be unprepared to handle it, or an heir may have substance abuse issues that could lead to irresponsible spending.

Guardianships in Ohio

People who are incapacitated because of a disability or are minors may need a guardian to manage their financial affairs and make important decisions about their care. A person in need of a guardianship is known as a ward. In Ohio, parents may nominate a guardian for their children for the future in case they die before the child reaches adulthood by putting a signed nomination in writing witnessed by two disinterested parties.

A probate court must appoint a guardian for it to become official. Under Ohio law, family members are given preference over non-family members. Once appointed, the guardian must report to the court how he or she is managing the ward's property and care. Natural parents of minor children do not typically seek guardianship over their own children because they are already legally considered guardians.

Estate planning tips for those who remarry in Ohio

Getting married for a second or subsequent time may have an impact on an estate plan. For instance, if a deceased person's spouse were to get remarried, the deceased person's assets could become commingled. This might result in assets going to parties other than the ones that they were intended for. Creating a trust may make it possible to specify where assets go regardless of a person's relationship status.

It is important to review an estate plan to avoid accidentally disinheriting children from a previous marriage. This might occur if a person and a new spouse own property jointly. It is also possible that beneficiaries will have to wait until both spouses die before getting their inheritance. Both of these issues could be resolved by creating a trust that specifies how and when assets are to be transferred after the estate holder dies.

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