Every year I begin with an explanation of what a living trust is and why someone might consider a living trust as a valuable estate planning tool.
People commonly confuse the terms “living will” and “living trust” and this confusion is understandable. Both of these terms contain the word “living.” The fact is that the word “living” has no real legal meaning whatsoever. The term “living” is primarily an industry term which was dreamed up by who only knows to make a something legal sound less daunting to understand.
Let’s take these two terms and deal with them one at a time. First of all we will deal with “living wills.” A living will is primarily a death directive and that is perhaps why someone elected to call this legal instrument a “living will” as opposed to a “death directive.” It would probably be challenging to legal counsel to convince someone to sign a document that had the words “Death Directive” printed at the top. Ohio like all other states does not permit euthanasia which is mercy killing. Ohio does however permit an individual to elect to not have life support employed when a physician or in some cases two physicians recite that life support will only prolong the dying process. In short, if you have reached the end stage of your life where you are in a terminal condition or a permanently unconscious state and the only thing that will maintain the semblance of life function is the intervention of heroic life saving devices like breathing tubes or feeding tubes, in Ohio you have the right to elect to not be placed on these machines. You have the right to choose to allow your body to pass away naturally.
The problem with this right is that if you are unconscious you may not be able to articulate your wishes. Accordingly it becomes necessary to have created a legally valid written instrument which delegates your right to choose to another person. This instrument is known as a “living will.” In Ohio living wills must be signed by you and witnessed by two disinterested persons and or notarized to be valid.
Living wills have nothing whatever to do with the distribution of your assets upon your death. If you have probate assets remaining at your death, those assets will be distributed to your beneficiaries by your “will.” If you have probate assets remaining at your death but leave no “will” the State of Ohio through its statute of descent and distribution will determine your heirs at law and will distribute your assets to them through a probate administration of your estate.
In Ohio and Florida, a probate asset is primarily defined as an asset which is titled in your name and which asset remains titled in your name after you pass away. If you have probate assets at your death you will have given the Probate court of your county of residence jurisdiction of your estate and will most likely have a probate administration of your decedent’s estate.
It is possible through estate planning to avoid the probate administration of your decedent’s estate. The key to avoiding the probate administration of your estate is to not have probate assets remaining at your death. Probate administration of your estate will only apply to those assets which remain titled in your name after you pass away. If you have made arrangements for the titles to your assets to automatically pass to your intended beneficiaries then those assets will pass to those persons pursuant to your instructions and in most cases probate administration will not occur or be necessary.
One of the methods of titling your assets to avoid probate is to retitle your assets into a “living trust” during your lifetime. Again the term “living” here has no precise legal meaning. It is a term primarily designed to make the user comfortable with trust planning. A trust essentially recognizes that all property is composed of two essential components. Those components are “title” and “use.” In other words all types of property have the concepts of “title” and “use” attached to them. When “title” and “use” of a piece of property merge in one person that is defined as ownership of an asset. It is possible, however, to place the “title” of an asset into a trust and retain the use and control of the asset. That split between “title” and “use” is essentially what trusts do. The person placing the title of an asset into a trust is known as the “Grantor.” If the Grantor retains the complete ability to use the asset while it is in the trust or to amend or terminate the trust and call the title of the asset back into his own name, then the trust is known as a “revocable trust.” The word “vocare” is the Latin word meaning “to call.” The term “revocare” is the Latin word meaning “to call back.” Accordingly a “revocable (living) trust” is a “call back trust” over which the Grantor has surrendered no control. As no loss of control to the Grantor occurs in placing the title to his or her assets into a revocable living trust, the taxing authorities regard revocable living trusts as disregarded entities for tax purposes and there are generally no tax consequences in transferring or removing assets from living trusts during the Grantor’s lifetime. The primary importance of creating and titling assets into a living trust is that when the Grantor dies the assets already titled in the trust will no longer be titled in the Grantor’s name and accordingly these assets in most cases will not be subject to probate administration or the primary jurisdiction of the probate court. The terms of the trust will determine who will inherit these assets.
So, here’s where we started. If you have a “living will” as your only estate planning document it should be clear to you after reading this article that you really have made no plans for the orderly administration of your decedent’s estate. “Living wills” and “Living Trusts” are “apples” and “oranges.” They are both important components of a well designed estate plan.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon is also licensed to practice law in Florida. David Bacon and Jeff Roth are partners in Roth and Bacon Attorneys with offices in Upper Sandusky, Marion, Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred forty nine of a series of articles. Copyright @ David F. Bacon 2008
