This article originally appeared in Cleveland Jewish News on March 25, 2020.
Since the federal estate tax exemption is now $11.58 million per person and there is no Ohio estate tax, many people feel there is no longer a need for a trust as part of an estate plan. However, in some situations, a trust makes sense.
Most people think their will or trust provides that upon their demise, their assets pass to their children and if their children pass away, the assets pass to their grandchildren. Hopefully, your children outlive you. If that happens, the typical will and trust provides that the money passes directly to your children immediately or by the time they are a certain age.
Either way, once the child inherits the money, it is governed by your child’s will or trust, not yours. That means that on your child’s death, the assets will most likely pay to your son-in-law or daughter-in-law, and may pass on their death to someone else, such as a new spouse. For some people that is fine, but for others, it may not be what you want. Many people want the money to stay in the family. To do that, you need what we call a bloodline trust.
For example, let us say a husband and wife have an estate of $500,000 and one child, who is married with two children. A typical estate plan will provide the inheritance pays outright to the child. Once the child inherits the money, the child’s estate plan will say all of their estate, including what the child inherits from you, pays to their spouse. With the bloodline trust, the $500,000 will be held in a trust for the benefit of the child. The child can be their own trustee and control the investments, and decide how the money is distributed.
Also, this is a private document that avoids probate. The government is not involved in administering the trust. However, when your child passes away, the trust assets will pay to your grandchildren, not your child’s spouse.
The other major benefit of the bloodline trust is the assets in the trust are protected against creditor claims or divorce. The only creditors that can attack the trust are child support payments for your grandchildren and the IRS or the state of Ohio for tax liabilities.
In summary, the benefits of a bloodline trust are:
- Provides that assets will be available for your children and the remainder will pay to your grandchildren, not to your child’s spouse
- Protects the assets from your children’s creditors
- Protects the assets from being split up if your child is divorced
You should examine your documents to see if they achieve your goals on distribution of your assets.