Hillary Taylor is an Associate in the Trusts & Estates Practice Group.  She can be reached at htaylor@bdblaw.com or 216.453.4287.

Disclaimers to Family Trusts

By: George Weinstein

Careful planning is necessary to minimize taxes on large estates. An effective strategy can be to create a family trust, which is also known as a credit-shelter trust or a bypass trust. At the death of the first spouse, the estate passes into the family trust, and at the death of the second spouse, the estate passes on to the heirs, free of estate taxes. Nevertheless, some spouses object to certain aspects of this strategy. An estate-planning attorney can work with the family to help address these concerns by creating a will that grants the surviving spouse the “power to disclaim.”

Spouses may object to having their access to income and principal restricted by a trustee. Instead, a spouse may wish to receive the devise outright, even though it may result in additional estate taxes upon his or her death.  The attitude of these spouses seems to be, “Whatever the kids get after taxes is O.K. so long as I can do what I want with the money during my lifetime.”  In addition, as the applicable exclusion amount increases under present law (e.g., it is scheduled to rise from $2,000,000 in 2006 up to $3,500,000 in 2009), more assets would have to be tied up in trust to save estate taxes at the second death

Giving the surviving spouse the “power to disclaim” addresses some of the often-heard objections. The residue of an estate can be left (either by will or through a revocable trust) outright to the surviving spouse, who then is given the power to disclaim (within nine months after the first spouse’s death) all or any portion to a family trust for his or her benefit.  Two additional provisions give greater flexibility to the family trust: First, the spouse could have what is known as a “five and five power,” which is a non-cumulative right to withdraw annually the greater of $5,000 or 5% of the aggregate value of the principal.  Second, the surviving spouse could also be given a non-general power to appoint principal (either during life or testamentary) among designated beneficiaries if the power of appointment is limited by an ascertainable standard.  IRC Reg. §25.2518-2(e)(2) and (5).

This approach will give the surviving spouse a nine-month period after the first spouse’s death to determine his or her needs during lifetime and the estate taxes that may be saved upon his or her own death, as well as possible generation-skipping transfer taxes at the second death.  The limited power of appointment will enable the surviving spouse to choose to which family members and in what form the principal will be left at that spouse’s death.  If, for example, a child does not treat the parent well, that child could be removed as a beneficiary of the family trust (as well as a beneficiary of the surviving spouse’s estate). 

Of course, this approach may not be prudent if a trust for the surviving spouse is necessary or advisable for reasons such as inability to handle money or manage investments, incapacity, second marriages where there are children of the first marriage, or where the first spouse wishes to control the passing of the estate upon desired terms to desired beneficiaries upon the surviving spouse’s death.  But in many situations disclaimers to family trusts offer the greatest flexibility for devises of estates with a post-death look-back opportunity. 

George Weinstein is Of Counsel in the Trusts & Estates Practice Group.  He can be reached at gweinstein@bdblaw.com or 561.241.0414.

Pending Legislation -- Ohio Senate Passes Bill to Authorize Parents to Designate a Guardian for Their Incompetent Adult Child

By: Amy K. Friedmann

Under current Ohio law, an individual’s Durable General Power of Attorney or Last Will and Testament may nominate a person to serve as the guardian of her minor children if a guardianship becomes necessary.  Down the road, this nomination is given weight by the Court as long as the Court determines that the nominated person is competent, suitable, and willing to accept the appointment. 

Much to the relief of many families, Ohio law may soon give this ability to the parents of an adult incompetent child as well.  On June 19, 2007, the Ohio Senate passed Senate Bill 157, which, if signed into law, would mean that the person nominated by the parent would be given preference by the Court over others who apply to become the child’s guardian.  The Court would have to determine that the nominated person is competent, suitable, and willing.  In addition, the parent’s nominated guardian would not be given preference if the incompetent adult child had a spouse or his own adult child, or if the incompetent adult child had designated his own choice of a guardian prior to becoming incompetent.

The Bill as passed by the Ohio Senate was introduced in the House on June 20, 2007, and has been assigned to a Committee.  We will continue to monitor this important legislation as it makes its way through the Ohio General Assembly and, hopefully, is signed into law by Governor Strickland.

Amy K. Friedmann is an Associate in the Trusts & Estates Practice Group.  She can be reached at afriedmann@bdblaw.com or 330.643.0227. 

Rules and Opportunities Under the New Florida Trust Code

By: Christopher Gagic

The Florida Trust Code, Chapter 736 Florida Statutes, became effective July 1, 2007.  The new Florida Trust Code combines prior codified Florida trust law with provisions adopted from the Uniform Trust Code, as well as provisions modified from the Uniform Trust Code.  The Florida Trust Code impacts many issues related to the creation and administration of Florida trusts. 

Under the Florida Trust Code, new reporting, notice and accounting requirements will need to be met beginning January 1, 2008.  Under the reporting, notice and accounting rules, beneficiaries have greater rights to access information related to trusts.  The Florida Trust Code generally applies to all existing trusts as well as new trusts created after its enactment.

The new Florida Trust Code also enhances certain planning options, such as creditor protection opportunities and planning to provide for a disabled beneficiary under the discretionary trust provisions.  With new rules and opportunities available under the Florida Trust Code, many people may want to review their existing revocable trusts with their Trusts and Estates attorney at Buckingham, Doolittle & Burroughs, LLP to determine whether revisions are appropriate to best meet their planning goals or to address administrative issues.  Trustees of irrevocable trusts should consider consulting with a member of the Trusts and Estates Practice Group at Buckingham, Doolittle & Burroughs, LLP to ensure that the trustee understands his or her reporting, notice and accounting duties, and that the trustee provides such information to the beneficiaries in a proper and timely manner.

Christopher Gagic is a Shareholder in the Trusts & Estates Practice Group.  He can be reached at cgagic@bdblaw.com or 561.241.0414. 

Thomas J. Bonasera (Columbus) spoke to the Franklin County Trial Lawyers Association on “What Every Litigator Needs to Know About Probate.”

Mary Sue Donohue (Boca Raton) presented to a group of lawyers at Mellon Bank regarding current trusts & estates issues.

David W. Woodburn (Akron) spoke to Sequoia Financial Group and Cohen & Company at an in-house seminar regarding, "Estate Planning 101:  The Basics and Beyond."