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People set out to develop estate plans to prepare for their own futures, to make provisions for the loved ones they will leave behind when they die, and to put in place tax-efficient wealth transfer strategies for asset protection. Whatever your personal motivation for developing a comprehensive estate plan, reviewing a concise estate planning guide can help you understand the array of options available and give you some perspective as you evaluate your choices. To go beyond a standardized approach and seek tailored estate planning recommendations, reach out to the experienced Rhodium Law estate planning team. Schedule a personalized legacy planning consultation today by calling our Cleveland office at (216) 279-5102.
Estate planning goals and priorities will differ from one individual to the next. However, there are a few core concerns that most people developing a suite of estate planning documents do usually try to address. These three goals account for three basic subcategories of estate planning:
The names for estate planning documents used to create advance directives, particularly for healthcare, vary somewhat from one state to another. Living Wills, which individuals can use to indicate their preferences regarding the administration or refusal of certain “life-sustaining” treatments and, in some states, to similarly indicate the individual’s preferences regarding organ donation, consent or refusal for specific emergency medical interventions, and so on, are among the most popular and generally go by similar names in most jurisdictions. Another common type of advance directive is used to designate a healthcare surrogate or “proxy” who will be authorized to make medical decisions in situations not covered in a Living Will on behalf of the individual who prepares the document, if that individual is unable to communicate their preferences and grant informed consent in real time. In Ohio, this document is known as a Durable Power of Attorney for Healthcare. Also sometimes called a medical power of attorney, the authority granted in this type of healthcare directive is different from the decision-making authority granted in a general or financial power of attorney. Individuals attentive to advance care planning often utilize a combination of documents to account for many possible contingencies and maximize their ability to ensure that their overall estate planning goals are achieved.
There are three main types of estate planning documents individuals can use to direct the disposition of their property even after they themselves have passed away:
Each type of document serves distinct legacy planning goals and offers its own combination of benefits and detractions in terms of asset protection, privacy, and options for customization. A conversation with an experienced Ohio estate planning attorney may help you to gain a tailored understanding of how these documents might work together in your particular situation.
Wealth transfer taxes are perennially unpopular and perpetually present. The degree to which taxes on the transfer of assets from one person (in estate planning, typically the testator of a Will or the grantor of a trust) to another party is likely to be impacted by wealth transfer taxation strategies such as the federal estate tax or state-level inheritance taxes can vary widely depending on the size of the individual’s estate, the nature and location of the assets included, and the identities of beneficiaries designated in estate planning documents. In some instances, the nature of the beneficiary’s relationship to the deceased individual can play a role as well. Understanding how estate and inheritance taxes work, and developing tailored, tax-efficient strategies to minimize the degree to which these wealth transfer taxes reduce the legacy you are able to leave behind, can often form an important area of consideration as you develop and organize all the elements of a comprehensive, highly effective custom estate plan.
No estate planning guide would be complete without addressing at least a few of the most commonly asked estate planning questions. Below are answers to essential questions that come up in legacy planning consultations again and again – but keep in mind that no “standard” response can truly account for the many individual factors that may come into play in a specific situation. To learn more and gain perspective tailored to your unique concerns, consider scheduling a personalized conversation with our friendly and knowledgeable estate planning team at Rhodium Law.
The choice of the person you wish to name as the executor of your estate can be among the most significant decisions you will make in creating your Last Will and Testament. The person who makes the most sense for your situation will depend on a variety of factors, but a good choice for the executor of your estate will generally be someone whose character and competence you are sure you can trust (keep in mind that “character” and “competence” do not always go hand-in-hand; there are plenty of well-meaning people who would not make good executors, and a large number adept individuals who should not be trusted in a role of great personal significance), who possesses administrative skills appropriate to the size and complexity of your estate and who – crucially – is willing and able to take on the responsibility.
Speaking ahead of time with any individual you plan to designate as your executor is a generally recommended practice. Besides getting the person’s consent to their appointment in advance, however, you may also wish to have a conversation with this person once the Will has been signed. Consider letting the executor know whether (and where) the Will has been fled with an Ohio court, and apprising the executor of any declarations of validity already issued, as these pieces of information may be helpful for them to know when the time comes to carry out their duties.
According to the Ohio State Bar Association, when an individual leaves behind a legally valid Last Will and Testament that names an executor, the Ohio court with jurisdiction to probate the estate will typically confirm the testator’s designation by appointing that person as the executor of the estate and issuing Letters of Testamentary authorizing the executor to commence their duties in the probate process. Until these letters have been issued by an Ohio court, the executor cannot legally begin the process of probating the Will.
On occasion, it may happen that the testator has not named an executor in the Will, or that the executor so named is unable or unwilling to perform the necessary duties when the time comes to probate the decedent’s estate. In this instance an Ohio court will instead appoint an administrator to oversee the same operations and conclude the decedent’s final affairs. As with other similar matters related to probate, the court has little latitude in choosing whom to appoint; state law requires that the probate courts follow the order of intestate succession in their selection of administrators in most cases.
Sometimes individuals preparing a Last Will and Testament may have concerns about how to ensure that the executor they have appointed adheres very precisely to the wishes the testator has expressed in the Will. In other instances, testators may trust their executors to follow every instruction to the letter, but have qualms about ensuring that those instructions reach the designated executor intact and unaltered.
The first of these concerns can be addressed by a wise choice of executor, bolstered by careful attention to detail and precision – both in the language used in the Will itself, and in communications with the person designated as executor of the estate. The state-specific privacy considerations applicable to Wills deposited with an Ohio probate court pursuant to O.R.C. § 2107.08 may go some distance toward allaying the second. Additional options for addressing this particular concern are likely to vary somewhat from one state to another, as states generally set their own laws regarding the requirements for legal validations of estate planning documents such as a Last Will and Testament. In Ohio, however, the two foremost options for dealing with this specific concern consist of:
In many cases, testators may be able to maximize the effectiveness of each of these techniques as safeguards against document alteration by using both methods in tandem. An Ohio estate planning and probate lawyer with Rhodium Law may be able to advise you of the options available in your situation.
Because O.R.C. § 2107.22 establishes that, in the case of conflicting versions of a Last Will and Testament, when both documents appear to meet the legal criteria for validity in place at the time and date of their original execution, the latest-executed version ordinarily prevails (subject to contest by interested parties, as described in the statute), updating the Will regularly, revoking any previous versions, and making it a habit to always deposit the latest version with an Ohio probate court (typically the court of the county in which the testator is a resident at the time of the Will’s execution) can help to ensure that the version of the Will filed with the probate court having jurisdiction over the testator’s estate will be the version that most accurately expresses their wishes.
You may also wish to consider updating other estate planning documents, such as powers of attorney or the beneficiary designations on any life insurance policy, at the same time that you update your Will. If no major recent changes have taken place, it can be a good idea to review your estate planning documents every few years to ensure that they are still compliant with all applicable laws in your jurisdiction, as well as remaining in line with your overall advance care and legacy planning goals.
Ohio’s courts offer residents a number of options for securing peace of mind by verifying the legal validity of various components of their estate plans. For individuals concerned about the possibility that someone may attempt to submit an altered Will to probate, thereby circumventing the testator’s wishes, one of the most important measures offered in Ohio can be the right to petition a court for a declaration of validity for either a Will or the document used to form a trust, as described in O.R.C. § 5817.02, which provides that a testator may, at his or her own discretion, file a “complaint” with the probate court in their jurisdiction, during the testator’s own lifetime, requesting the court to declare that the Will or trust instrument submitted to the court is valid.
Once the court has determined, in response to such a complaint, that the Will as submitted is valid, this validity stands except in case of the testator’s own subsequent modification or revocation of the Will. Importantly for testators concerned about the possibility of nefarious alterations in their estate planning documents, § 5817.02(A) specifies that the right to file a complaint requesting an Ohio court’s declaration of validity for a Last Will and Testament is reserved to the testator exclusively; it is not transferable to, and cannot be exercised by, an agent designated in a power of attorney, nor by a guardian appointed by an Ohio court.
Testators in Ohio are not obligated to disclose any provisions of their Wills during their own lifetimes. O.R.C. § 2107.08 specifically prohibits the delivery, during the testator’s lifetime, of a Will legally deposited with an Ohio court pursuant to § 2107.07, to any person other than a probate court, a person bearing a written order containing the testator’s authorization for release, or the testator personally. Ohio residents who wish to do so may keep the provisions of their Will, and the intended disposition of the property in their estate, secret from all parties except themselves and the witnesses whose signatures attest the validity of the Last Will and Testament (and an Ohio probate court, if the testator requests a declaration of validity during their own lifetime as permitted under § 5817.02).
Although Ohio law provides strong privacy protections for the contents of Wills until their production is requested in order to open the probate process pursuant to their testators’ death, there are a variety of reasons for which testators often do choose to discuss their plans with beneficiaries with whom they maintain a close personal relationship. Talking with intended beneficiaries may be especially advisable if a significant portion of the estate is expected to consist of non-liquid assets, such as real estate or art collections, because in those instances it may be important to be sure that these assets go to beneficiaries whose own plans for their futures will allow them to take proper care of the property left to them and not only fully appreciate, but actively build upon, the value of their inheritance. For related reasons, speaking in advance with the person you intend to name as the executor of your estate to make sure that they consider themselves willing and able to fulfill a role of such responsibility is also not a legal requirement – but a renunciation of the role by the individual designated as executor in the Will as described in § 2113.12, can create a variety of inconveniences and delays, so for reasons of practicality as well as courtesy, it is generally considered to be a good idea.
A power of attorney is a legal document that grants one person authority to make certain decisions or carry out certain kinds of actions on behalf of another individual. The individual who creates the power of attorney and thereby grants authority is the “principal,” and the person designated in the document as authorized to exercise the power of attorney may be called either the “agent” or the principal’s “attorney-in-fact.” The latter term underscores the fact that – in much the same way that an attorney-at-law represents a client in legal matters – an attorney-in-fact represents the principal in whatever matters are delineated as falling under the agent’s purview in a power of attorney.
In addition to being distinguished by the kinds of decisions or actions they authorize their agents to undertake, powers of attorney can be categorized by the “durability” of the powers they confer. The important categories to keep in mind in this respect are:
As suggested by Ohio’s use of the term “durable power of attorney for healthcare” throughout the state’s governing statute, a medical power of attorney is necessarily durable, as it is activated only in the event that the principal’s attending physician determines the individual to have lost (either permanently or temporarily) the capacity to evaluate information related to their own condition and grant informed consent for medical treatments or act as advocates for their own care. Since a power of attorney for healthcare only becomes effective under certain circumstances (the principal’s incapacity), it is also typically considered a “springing” power of attorney.
For the sake of convenience, and in keeping with Ohio’s adoption of its own version of the Uniform Power of Attorney Act, however, all powers of attorney executed in Ohio are durable unless otherwise specified by the principal in the written document. As a result, estate planners who do wish to execute a non-durable power of attorney (springing or otherwise) in the state will need to ensure that the powers conferred in the document shall expire in the event of the principal’s incapacity (and also specify any additional or alternative conditions they wish to apply as requirements for “springing,” if desired).
Often individuals need to outline the situations in which a specific type of estate planning document might be useful in order to determine whether they wish to include that type of document in their own estate planning designs. Two of the primary reasons a financial power of attorney might be needed are long-term physical illness, which can make it difficult to navigate institutional offices and stay on top of one’s own affairs, even for individuals who remain mentally “sharp” and in command of their customarily astute judgment, and mental incapacity, which can arise not only from encroaching illnesses, such as dementia, commonly associated with advanced age, but also as the result of a sudden accident, to which people of every age and health status are always subject.
Like the legacy planning that often goes into structuring a trust, advance care planning is a subcategory of estate planning tailored toward a specific set of goals. In the case of advance care planning, these goals are organized around ensuring, to the maximum extent possible, that:
Documents aimed at the management of ongoing medical or financial considerations are sometimes also considered documents for “incapacity planning”; these may be developed in conjunction with documents whose application has a more limited scope, such as “do not resuscitate” (DNR) orders incorporated into an individual’s patient record. Because people of any age can always be susceptible to sudden illness or injury, regardless of their current state of health, estate planning attorneys will frequently recommend to their clients that they consider including documents to address the possibility of future incapacity as part of their overall estate planning design.
Estate planning attorneys and other professionals may use a variety of terms to refer to a category of documents that allow individuals to anticipate a range of medical emergencies and eventualities and establish clear, written directives for healthcare workers and others involved in their care to follow if the occasion arises. Because they provide directions, given in advance, these documents are sometimes called advance directives – but they may also be called medical directives, healthcare directives, or advance directives for healthcare, along with a few other variations on similar expressions.
Regardless of the specific term employed, these documents belong to the subset of estate planning considerations the National Institute on Aging (NIA) calls advance care planning. The NIA notes that the two estate planning documents most commonly used in advance care planning are the Living Will and the Durable Power of Attorney for Healthcare.
As noted above, the terms used for this second type of document vary somewhat from state to state. O.R.C. § 1337.11-17 uses the term “durable power of attorney for healthcare” (healthcare in Ohio’s Title 13 is written as a single word), and places statutory guidance for this document alongside state laws covering other powers of attorney – meaning that the statutes governing a medical power of attorney in Ohio are separated, in Ohio’s code of laws, from other statutes relating to healthcare considerations. Instead, in Ohio the durable power of attorney for healthcare appears next to the state’s statutes governing general powers of attorney, which are more commonly used to authorize another person to carry out the financial transactions, and otherwise manage the non-medical affairs, of the person who creates the document.
While it is possible to authorize the agent nominated in an Ohio power of attorney to make estate planning changes such as updates to the principal’s beneficiary designations, this type of authority is not automatically included in the powers conferred by a power of attorney document, according to O.R.C. § 1337.42. A legally valid power of attorney executed in Ohio after 2012 (the year in which the state’s version of the UPOAA came into effect) will be presumed not to grant the agent any rights or authority over the principal’s estate plan unless the principal adds to the statutory form a clause specifically granting the type of control (such as changes to specific documents, or specific types of changes to multiple documents) the principal wishes to incorporate into the power of attorney.
These presumptive exclusions were included in the text of the Uniform Power of Attorney Act in its distribution to states, according to both the Uniform Laws Commission and the Ohio State Bar Association, in large part as a measure introduced to prevent elder abuse (or, at a minimum, to make taking advantage of elderly and ailing relatives less convenient). Consequently adding these specific grants into the power of attorney document is not recommended unless both of the following apply:
An Ohio estate planning attorney with Rhodium Law may be able to answer further questions regarding the scope of authority appropriate to your estate planning goals, as well as the implications of any explicit expansions of the powers granted beyond those encompassed in Ohio’s statutory form.
O.R.C. § 2107.35 provides that the presence of “an encumbrance” acquired for the purpose of securing payment for a debt (such as a mortgage) on any item of property included in a decedent’s estate does not, in itself, invalidate any disposition of the encumbered property previously made in a valid Last Will and Testament. However, because O.R.C. § 2107.54 separately specifies that the entire estate of the testator is liable for any outstanding debts the testator holds at the time of his or her death, the presence of such encumbrances may have a bearing on the total value of the estate and, therefore, on the assets available for transfer to beneficiaries. O.R.C. § 2117.06 places some limits on the time frame creditors have in which to make their claims against the estate known, as well as specifying the deadline by which the executor (or administrator, if the estate is subject to intestate succession) is obligated to respond to such claims.
For debts and claims against the estate more generally, the usual rule is that in most cases the estate’s debts must be satisfied before the decedent’s accounts can be closed and property finally distributed to beneficiaries in accordance with the terms set out in the Will. While a generally recognized practice is for executors to ensure that all creditors of an estate have been satisfied prior to making distributions to designated beneficiaries, for efficiency’s sake Ohio law provides, under O.R.C. § 2113.53, for the executor or administrator of an estate to make contingent distributions when certain criteria are met:
The recall of property may be carried out in part, and will typically also be “distributed” across designated beneficiaries, such that no single beneficiary’s share is disproportionately affected. Importantly, if the decedent has left behind by a surviving spouse, the election of the surviving spouse may be considered a claim against the estate for the purpose of assessing the shared liability of designated beneficiaries with respect to satisfying the legitimate, duly filed claims of any creditors of (claimants against) the estate. Individuals concerned with setting up an asset protection strategy to ensure that the gifts they leave to beneficiaries are undisputed may wish to consider additional options, such as an irrevocable life insurance trust.
One very common area of concern in estate planning related to how various beneficiary designations may affect tax liability, for the estate or the party designated to receive the property or both. The good news is that in Ohio the majority of beneficiary designations carry few, if any, tax implications that might reduce the value of the gift an individual hopes to leave as part of their legacy. The less-good news is that there can always be exceptions. An estate planning guide cannot cover all possible contingencies, but two major tax considerations individuals may wish to consider as they prepare their beneficiary designations as part of an asset protection strategy for ensuring tax-efficient wealth transfer include:
The Rhodium Law team is passionate about helping clients build and preserve generational wealth through tax-efficient legacy planning strategies that take advantage of the many available deductions and exemptions. Options for asset protection do in some cases vary by beneficiary as well as by jurisdiction, however, so consider scheduling a personalized consultation to help us develop an understanding of your needs.
Ohio no longer imposes its own estate tax. The federal estate tax, overseen by the Internal Revenue Service (IRS), offers a blanket exemption for estates whose total value falls below the threshold established for the year in which the individual passes away. Federal tax regulations also provide for a few key deductions that may help to reduce the calculated value of the estate. Two of the most notable deductions individuals may wish to consider in their estate tax planning are the deductions for:
There are a few other important deductions and exclusions that may help to reduce the final computed value. Estate tax liability is generally determined by computing the fair market value of all assets contained in the gross estate, minus any applicable deductions, so if you think there is a chance that federal estate tax could reduce the inheritance you leave to your chosen beneficiaries, consider going beyond an online estate planning guide to schedule a personalized legacy planning consultation with an estate planning attorney who is familiar with the estate tax calculations necessary for large estates. An attorney experienced in tax-efficient wealth transfer strategies may be in a position to help you determine whether your asset protection strategy has taken advantage of all appropriate legal methods to help you minimize estate taxes.
Because Ohio does not impose an inheritance tax at the state level and there is no federal inheritance tax, Ohio residents reviewing their beneficiary designations in an attempt to achieve tax-efficient legacy planning may be surprised to learn that in some situations, inheritance taxes may still need to factor into their considerations. The issue is most likely to arise when an Ohio resident owns property located in another state that levies its own inheritance tax.
Generally speaking, the tax liability for a decedent’s estate is determined by the tax laws of the state in which the individual was legally domiciled at their time of death. Even when the decedent leaves part of their property to a beneficiary who lives in a state that imposes an inheritance tax, if the deceased individual was a domiciled in a state – such as Ohio – with no inheritance tax, then no inheritance tax will apply.
States that do levy an inheritance tax commonly impose the liability for this tax on the transfer of any property located within the state that levies the tax, regardless of where the property’s owner is domiciled. Ohio’s neighbors Kentucky and Pennsylvania both apply this principle, although the statutory language is slightly different for each state.
Ohio residents who own property in a state that levies an inheritance tax may be able to reduce the inheritance tax implications for their beneficiaries by strategically selecting the beneficiaries to whom they leave specific assets. Most states that impose an inheritance tax also exempt some beneficiaries; they may also offer a graduated tax rate. Generally these exemptions are determined, and the eventual tax rate calibrated, according to the nature of the relationship between the decedent and the beneficiary: The closer the familial relationship between the parties, the lower the tax rate is likely to be, with surviving spouses often exempt altogether.
As with the federal estate tax, in some situations gifts left to certain qualifying charitable organizations may also be exempt from inheritance tax. The specific exemptions available, as well as the tax rate on transfers of property to any non-exempt beneficiary, will depend on the laws of the state in which the tax is assessed, so you may wish to consider speaking with a dedicated estate planning attorney who can help you determine the optimal beneficiary designations to ensure that each gift you leave in your legacy planning goes where it will have the greatest impact.
Trusts are legal entities created to hold assets, which are placed under the management of a trustee. In accepting the trust, the trustee assumes a fiduciary duty with respect to the trust’s beneficiaries, for whose benefit the trustee manages the resources placed in the trust by its trustor (also known as the grantor or settlor). The right kind of trust can be a practical estate planning tool for a variety of purposes – and while a trust is not truly functional until it is funded with at least some form of property, there is no requirement that a trust be formed only if it will contain a cornucopia of resources. While individuals embarking on their legacy planning journey often feel an instinct to oppose trusts vs. Wills, understanding them as alternatives to each other, in many cases it may make more sense to use a Will in combination with one or more trust(s) to develop a custom suite of tools for asset protection and the disposition of property to designated beneficiaries.
The primary motives for creating a trust will of course vary widely from one grantor to another, not all of which can be addressed in a general estate planning guide. Additionally, different types of trusts are optimized for different purposes. With these caveats in mind, however, some common reasons why individuals of any age or income may choose to form a trust include:
Individuals who establish a power of attorney to help handle their finances and general day-to-day administrative tasks may find it practical to fund a trust and name the agent as a trustee or co-trustee. Because an agent’s authority to make changes to the principal’s estate planning documents, include the terms of a trust, are typically limited, forming a trust can be a way to set aside assets for specific uses, such as long-term care needs, and ensure that these resources will be both accessible to the attorney-in-fact and used only as intended. This trust arrangement can also be useful if the principal for any reason wishes to specify limits somewhat narrower than those suggested by the statutory form for power of attorney on the agent’s ability to access and deploy resources held in other accounts at will, so using a trust in combination with a power of attorney can offer enhanced flexibility to a custom estate plan.
Most revocable trusts are treated as “pass-through” structures for tax purposes, meaning any income from the trust will be counted on the grantor’s individual income tax and any assets in the trust may be demanded in payment of the grantor’s debts. The same is not true, however, for an irrevocable trust – so when mitigating tax liability is a concern, especially but not exclusively for the purpose of managing taxes on the transfer of property at the grantor’s death, then creating and funding an irrevocable trust may offer a practical strategy for asset protection.
Unlike a Last Will and Testament, which becomes part of the public record as soon as it is admitted to probate, trust instruments remain private documents even after the grantor’s death; there is no requirement that they be made public in order to take effect. Individuals with privacy concerns of many different kinds may prefer the unpublicized generosity of a gift made via trust, especially if there are concerns regarding how the intended beneficiaries might be perceived if the gift made to them – either during the grantor’s lifetime or upon the grantor’s death – were widely known.
An estate planning guide can offer an overview of the most widely used estate planning documents and provide answers to essential estate planning questions. However, truly effective legacy planning also entails not only choosing the right types of documents to make up an estate plan, but drafting each individual item of legal “paperwork” to ensure that the finished version is carefully customized and tailored to meet the client’s overall goals and fit seamlessly within a comprehensive estate plan. Working closely with an estate planning attorney to ensure that each document within your total estate plan is not just legally valid, but crafted to directly address your unique needs and concerns, can make an enormous difference in your peace of mind now and the quality of your legacy planning outcomes later.
An experienced estate planning attorney will likely want to get to know you, and develop a thorough understanding of your personal estate planning priorities, before making advanced estate planning recommendations for advance care directives, asset protection strategies, and whether setting up a trust might enhance the effectiveness of your Last Will and Testament. Understanding your goals and preferences from the inside out can put an attorney who has the necessary familiarity with laws in your state in a position to not only act as your personal guide to estate planning, but as the architect of a carefully-orchestrated custom estate plan design, creating a suite of complementary documents that work together to achieve your overall goals.
Schedule a legacy planning consultation to find out how Rhodium Law can meet your needs by calling our Cleveland office at (216) 616-1139 today.
