Do you want to set up a trust in Oklahoma? Do you really need one? Isn’t a Last Will and Testament enough to take care of estate planning?
All depends on what you’re trying to accomplish with your estate plan in Tulsa County and beyond.
Everyone deserves for their passing or incapacity to be as painless as possible for their families. A lot of people want to skip the probate process, avoid nursing home poverty, or minimize estate taxes.
Some couples want to keep their kids’ inheritances divorce-proof or provide for a special-needs family member, while others worry about a second marriage.
No matter why you’re considering a trust, it’s important to know how they work and what they can do for you.
Tulsa residents like to include 10 types of trust in their estate plans and this article compares Wills and trusts.
Trusts or Wills: Which is Better?
The trust is one of the primary vehicles we use these days. It’s an excellent way to protect you, your estate, and make sure your loved ones are taken care of. Trusts have many benefits.
Today, trusts are popular because they let you avoid the probate process, which you must face if you only have a will.
Why do people want to avoid probate? Usually, it’s a long and stressful process, and it’s expensive, and leads to family fights
Despite the fact that every probate is different, it takes between six months and several years to complete. You may need to go to court multiple times. Documents must be stamped, reviewed by a law clerk, and signed by a judge before they can be given to the family. There are a lot of steps.
Also expect legal delays, courthouse delays, paperwork delays, financial institution delays, and delays from title companies.
Probate costs vary from $3,500 to $15,000 – or more – depending on the heirs, the issues, the assets, the complexities, and other costs.
If you’re married, you may have to go through probate twice. You’ll have to go through it once after your spouse dies and your family will have to go through it again once you die. If you have property in another state, you may have to go through the process three times.
Everyone who goes through probate never comes out happy. It’s horrible.
In addition, Wills only take effect after the person who made them (the “testator”) dies. A will doesn’t help your family when you’re still alive but incapacitated. Or you can just sign a trust and it’s enforceable. When you die, your loved ones get their inheritance right away.
Having a trust in your estate plan is also a good idea if you value privacy. Maybe you don’t want everyone to know what you have. In the event of your death, your will must be filed with the court. A family trust protects your family’s business interests.
As an example, consider the mother who left her daughter jewelry and furs as an inheritance. In the Will, which is filed with the court, all public information is available. The daughter took a trip after the Will was published.
She posted pictures of how fun she had at the beach on social media.
Some clever criminals had discovered her newfound inheritance through public court records. Her jewelry and furs were disposed of while she was away from home, so they followed her social media posts.
A probate in Oklahoma can absolutely lead to this outcome. When my wife and I bought our house, in less than a month we were getting letters about home warranties, new home insurance, refinancing, and so many other options, because real estate records (like probate), are public.
Even though this is an extreme example, most of us would feel safer if our affairs were kept private. This is possible with trusts. Unlike Wills, trusts aren’t filed with the Court and therefore aren’t made public.
It is generally believed that trusts are reserved for the wealthy. These days, since trusts come in so many varieties, almost any estate planning strategy can benefit from one. In addition to managing assets, personal property, insurance plans, and retirement plans, trusts are also used for managing real estate.
Setting up a trust can enable you to:
- Prevent delays and costs associated with probate
- Keep your estate settlement private
- Minimize estate taxes
- Dictate the terms of asset distribution
- Shield assets from creditors and lawsuits
- Provide structure and protection for children
- Gift biological children different amounts
- Set aside funds and a caregiver for your pets
- Prevent disputes among beneficiaries
- Provide for special needs loved ones without interrupting government benefits
- Protect financially irresponsible loved ones from spending inheritance too quickly or losing it to divorce or creditors
- Prevent a son-in-law or daughter-in-law from squandering your child’s inheritance
- Reduce taxes, court fees, and legal expenses for your loved ones
- Prevent nursing home poverty
- Support a charity that you are passionate about
Getting a Tulsa trust attorney to assess your needs and explain the types of trusts that are appropriate for your goals is a good way to confirm whether you could benefit from a trust.
How Do Trusts Work?
Trusts come in many varieties, but they all involve the same people: (1) the grantors (who create the trust), (2) the trustees (who manage the trust), and (3) the beneficiaries (who benefit from trust assets).
When you set up a trust, you tell the trustee what to do with certain assets when you die, rather than letting a court decide what should happen to them. Having assets in a trust means that your estate will not have to go through probate. The grantor defines the trust terms and specifies how distributions will be made to the beneficiaries.
A living trust (“living trust”) can be created during your lifetime, or a testamentary trust can be created after your death. Living trusts can be revocable or irrevocable. In testamentary trusts, revocable trusts are not permitted.
The ten most common types of Oklahoma trusts
Tulsa estate planners use a number of different trust types. Depending on your estate planning goals, each type of trust accomplishes different objectives.
Revocable Living Trusts
The term revocable living trust is also referred to as a “living trust” or a “revocable living trust.” Revocable living trusts are more straightforward than wills. This type of trust does not require probate and public records, as opposed to Wills.
Instead of the Court distributing your assets, you appoint a trustee. Revocable trusts give beneficiaries access to their inheritance immediately, rather than months or even years down the road.
Even after your assets have been transferred, you retain complete control over them thanks to revocable trusts. As long as you are mentally competent, you may change the beneficiaries, remove assets, or sell them at any time.
You can use a revocable living trust to:
- Manage assets like homes, businesses, bank accounts and investments
- Prescribe exact instructions to how to handle your affairs
- Guard beneficiaries from poor decision-making
- Keep your money, heirlooms and family business within the family
- Maintain total control of your assets
- Select a person or professional trust company to distribute your assets
Jane and John, who have three adult children, are an example of a couple planning their estate. Many years ago, Jane’s mother drafted a will. Jane and her siblings were delayed in receiving their inheritance for an entire year due to delays in the probate process and family disputes.
In order to avoid future difficulties, Jane and John’s children should create an estate plan.
When Jane and John die, they want their Owasso home to pass to the surviving spouse. On the death of their second spouse, all three children will inherit everything equally. It will be Linda who will handle everything after her husband’s death.
John and Jane are looking for a Revocable Living Trust. While the beneficiaries are alive, the trust can be used as they see fit. Assets can be bought, sold, managed, and donated – no restrictions. After one spouse dies, nothing changes. If John and/or Jane become incapacitated, no court-appointed guardianship will be necessary to help take care of them.
In the event of John and Jane’s deaths or incapacity, Linda will become the successor trustee and the three children (including Linda) will inherit the trust equally.
To avoid probate, Jane and John title their Owasso property into the trust. In addition to the revocable living trust, their investment accounts are named after
John and Jane. So, if they die, their investments will go to their kids.
John and Jane also place other assets in the trust, such as certificates of deposit, mineral rights, and individual stocks.
In addition, some assets do not have to pass through probate anyway, so they do not need to be incorporated into a trust. IRAs and 401(k)s and are examples of assets that already have designated beneficiaries.
As a result of John’s death, Jane wishes to move closer to Linda and her grandchildren. The Revocable Living Trust enabled Jane to sell her Owasso house immediately, whereas a house without a Will could take a year or more to sell.
Jane marries a man with an adult daughter a year after John’s death. His children are worried about their inheritance. What will happen if Jane dies? What will happen to his step-sister?
Nothing! Upon death of the second spouse, the trust transfers the assets to the beneficiaries (Jane and John’s three children). Linda and her brothers can receive the money in the $600,000 investment account of John and Jane immediately after
John’s death, avoiding a family dispute about the funds.
As a result, a Revocable Living Trust is a fantastic alternative to a Last Will and Testament that will ensure your surviving family members are not faced with complications when you pass away.
Revocable living trusts are also good for blended families. For example, Oklahoma law doesn’t give stepchildren inheritance rights like biological kids and adopted kids. If you create a Revocable Living Trust and name your stepchildren as beneficiaries, you can make sure they get their share of the inheritance.
Additionally, Revocable Living Trusts are safer than Joint Tenancy with Rights of Survivorship (JTROS).
Would it have been better if John and Jane just used JTROS instead of a Revocable Living Trust?
If Jane dies, her new husband gets the Owasso property. If he dies, his daughter gets it. Linda and her two brothers wouldn’t get a penny.
Revocable Living Trusts are awesome for blended families, as you can see.
Due to the fact that you still have control over the assets in a Revocable Trust, they’re still at risk for estate taxes, creditors, and lawsuit liability, and are included as assets in government benefit cut-off points. These issues can be handled with other types of trusts.
Irrevocable Trusts
Trusts like these are popular for protecting assets from creditors. With an Irrevocable Trust, you give up all your rights to an asset, handing it completely over to the trust.
Irrevocable Trusts are irrevocable, so terms, beneficiaries, and assets can’t be changed (or can only be changed in extremely limited circumstances). However, this also means the asset is safe from creditors and lawsuits.
Furthermore, by relinquishing control of the asset, it no longer contributes to your estate’s value, so it could lower estate taxes.
Irrevocable Trusts can also help you keep government benefits for a special needs kid by avoiding disqualification, can help you avoid Medicaid spend-down provisions, and can help you avoid nursing home poverty.
With an Irrevocable Trust, your assets are protected from probate and removed from personal tax and gift exemptions.
Testamentary Trusts
Putting your kids in a trust is a great way to name a guardian for them (under 18) and protect their inheritance. There’s a myth that when you leave a Will and name a guardian, the guardian gets the inheritance automatically.
Sadly, that’s not the case.
It takes months to years for your Will to go through probate.
A guardian you name in your Will may not always get appointed by the Court. The Court can pick a guardian in the minor’s best interest (but the parents’ wishes are taken into account).
Until the child turns 18, the Court, not the guardian, controls the inheritance. Despite the guardian being able to use some of the inheritance, the Court will be watching them closely.
Inheritances will be given to a child once they turn 18 (not exactly the best idea if you want the inheritance to last for years).
Furthermore, the process of appointing a guardian can be expensive. The inheritance pays for it all. Due to the Court’s goal of treating everyone equally, it may be tough to make sure one child gets special treatment more than another.
It’s better to leave an inheritance to a minor child through a testamentary trust. A trust lets you name a trustee to handle your inheritance instead of the court. The age at which the child receives the inheritance can also be specified (instead of the default one). Most people think 21 is safe, 25 is better and 30 is better.
Testamentary trusts aren’t perfect, though. You can’t fund these trusts until the Will has been probated, and that takes time.
Additionally, if you become incapacitated, the trust won’t go into effect until the will has been probated, which could leave your minor child without care.
Lastly, because the Will must be probated, your affairs go public, so everyone can see what your kid inherits.
Revocable living trusts are a great way to leave an inheritance to a minor.
Revocable living trusts allow your guardian to receive the inheritance immediately rather than waiting for the court. Plus, your Revocable Living Trust comes into existence as soon as you sign it – before you become incapacitated or die. So if you’re incapacitated, your kid will be taken care of.
Spendthrift Trusts
Today, the Spendthrift Trust is a really popular way to control beneficiaries’ spending. You might find this trust useful if you have an adult child who is financially irresponsible.
You can protect a spendthrift’s inheritance by having a family member distribute it in small, annual amounts. This could cause some serious family fights, though. The majority of people choose to establish a Spendthrift Trust to avoid these problems, appointing a third party to control the inheritance instead.
Spendthrift Trusts are basically inheritance trusts, but with a professional trustee.
Trusts are created when assets are transferred to a trustee, who makes regular payments to the beneficiary. Beneficiaries don’t have control over the trust and don’t have access to remaining funds. It generates interest and dividends, though.
Let’s say Tom wants to leave $3 million to his 40-year-old daughter Grace. Grace is a poker player (but not so good one) and a shopaholic. Tom sets up a Spendthrift Trust that only pays Grace $75,000 per year.
Grace cannot use the $3 million as collateral because she doesn’t own the assets in the trust. Creditors won’t be able to touch Grace’s trust if she doesn’t pay off her credit card bills. They can only touch what’s left of her $75,000 distribution.
Pet Trusts
Pets make up about 65% of American households, and it’s not uncommon for pets to outlive their owners. The majority of pet owners want an easy way to make sure their animals are taken care of after they die.
We can’t name our pets as beneficiaries in a Will because estate law views pets as property. So in the past, pet owners and estate planners would come up with creative ways to make sure pets got the support and care they needed.
People sometimes leave their pet and a lump sum of money to someone they trust in their Will. You’re not obligated to take care of the pet if you do this.
However, in 2010, Oklahoma lawmakers passed a law (60 Okl. St. Ann. 199) allowing pet owners to set up trusts for their animals, including companion animals, race horses, hunting dogs and therapy animals.
There are several steps to set up an Oklahoma Pet Trust.
It’s very important to keep track of who owns the pet since animals are still considered property in estate law. Identify who owns the pet ahead of time.
You can prove ownership if your pet goes missing by microchipping it and making sure it has a tag with your name and address. Making copies of your trust for everyone involved can help ensure ownership of the pet is clear.
The second thing your Pet Trust needs is a “guardian” (the person or organization who will look after your pet) and a “trustee” (the person or organization who will manage the trust’s finances). I don’t always recommend having the guardian and trustee be the same person.
Having a separate trustee ensures the guardian follows your pet care instructions since the trustee oversees what the guardian does with the pet. Should the original guardian and trustee not be able to do their job, you will need to name a successor.
Third, you need to fund your Pet Trust. If not, your guardian might not be motivated to take good care of your pet.
Consider the age of your pet (they get more expensive with age), the type of pet (racehorses need more care than the average dog), and any special needs. Specify everything from which food your pet eats to how much food to feed to which vet you want.
Last but not least, you need to name the rest of the estate beneficiaries. Pets are primary beneficiaries of a trust, but the remaining beneficiaries will get whatever’s leftover. As a remainder beneficiary, most owners choose a charity or animal hospital, but you can also name a family member.
Medicaid Irrevocable Trusts
The majority of Americans will spend at least some time in an assisted living facility, nursing home, or receive home health care. These costs can add up. The average cost of living in an Oklahoma nursing home is $63,000 per year – double if both spouses need care. As a result, most Oklahomans use Medicaid to help cover these costs. The majority of Oklahoma nursing home residents receive their care through Medicaid. These benefits are available to eligible individuals only.
(As of 2021) one of the requirements for Oklahoma Medicaid is that your income must be less than $2,382 per month and your assets must be less than $2,000 per year. In Oklahoma, personal belongings, one vehicle, and your home (valued at less than $603,000) may be exempt from this resource limit; however, many people still have more than $2,000 in assets after subtracting their home and vehicle.
To qualify for nursing home care, some couples are forced to sell their assets. Setting up a Medicaid Irrevocable Trust is the best way to avoid this spending down of assets. Long-term care expenses can still be covered by Medicaid with these trusts, which protect non-exempt assets while protecting your assets.
Rather than transferring your non-exempt assets to your children, you need to put them into a Medicaid Irrevocable Trust instead. By doing so, they can avoid capital gains tax and you are still able to retain some control over their assets during their lifetime.
Asset Protection Trusts
Those in industries that are susceptible to lawsuits want a way to protect their assets. The law makes it illegal to transfer assets to avoid creditor judgments, so smart estate planners will protect their assets before they ever get sued.
There’s a risk we’ll all lose our assets if we get sued. When you default on a loan, creditors will take everything you own. In case your neighbor gets seriously hurt on your Tulsa property, you might have to pay their lost wages and lifetime medical expenses. Divorce makes a lot of people lose their hard-earned money.
There are some professions that are even more at risk for lawsuits. There are EEOC lawsuits, workplace injury lawsuits, sexual harassment lawsuits, trademark infringement lawsuits, and breach of contract lawsuits for business owners. Doctors and lawyers can get sued for malpractice.
If you’re in a high-risk business or if you’re in a high-risk profession like medicine or law, you need to shield yourself from the liabilities those fields come with.
There are many states that require or suggest that professionals like doctors, lawyers, accountants, architects, dentists, land surveyors, veterinarians, and even harbor pilots incorporate. It’s safer to incorporate or operate as a Limited Liability Company (LLC) or Professional Limited Liability Company (PLLC).
Protect your assets from lawsuits and liability with Asset Protection Trusts. You lose control of assets when you put them in an irrevocable trust. You can’t access them because they’re no longer part of your estate.
There are currently 15 states (including Oklahoma) that provide Domestic Asset Protection Trusts (DAPT). The Domestic Asset Protection Trust was created to protect assets in the United States (hence “domestic”).
Trusts for overseas assets are another way to protect your assets so your kids and grandkids can enjoy the fruits of your labor. Think about using a Foreign Asset Protection Trust – where your assets are placed in a jurisdiction where U.S. courts can’t enforce judgments.
Additionally, any revocable trusts you own become irrevocable after your death, protecting them from judgment creditors.
It’s best to hire a professional to help you set up a Oklahoma Asset Protection Trust. We recommend that you talk to an experienced Tulsa estate planning attorney if you’re a business owner, doctor, lawyer, or other high-risk industry professional, so they can look at your assets and find the best strategy to protect your assets.
Inheritance Trusts
Maybe your daughter-in-law is too controlling, or you have a not-quite-perfect son-in-law? Your situation is not unique. We are often approached by clients who are concerned about making their inheritances divorce-proof. A family business, an heirloom, or money should stay in the family. How can you make sure it does?
Including the inheritance outside of the marital property, and describing how it is to be divided after the divorce, in a prenuptial agreement can help protect your child’s inheritance from their spouse.
However, if you wish to protect your child’s inheritance from divorce or creditors, a Children’s Inheritance Trust is often a better option. When a beneficiary dies, these trusts can reduce or even eliminate estate taxes and pass to their children.
Inherited assets are separated from those owned by your child’s spouse (marital property) in an Inheritance Trust, so the inheritance is not subject to division in divorce. An irrevocable or revocable trust can be created.
You control the assets of a revocable children’s inheritance trust during your lifetime, but they are still vulnerable to your creditors. You relinquish control of the assets in an Irrevocable Inheritance Trust, but they are protected from creditors or judgments against the grantor.
For your Children’s Inheritance Trust, select an independent trustee, such as a bank or trust company, so that your children don’t have to stand up to their spouse’s financial interests. A family member’s requests for money tend to be given in disputes, rather than the inheritance being protected.
2503(c) Minor’s Trusts
The difference between a Minor’s Trust and a Children’s Trust is that a Minor’s Trust is for a beneficiary under 18 years old.
The trust protects the inheritance by assigning a trustee who distributes the money for the minor’s health, education, maintenance, and support (HEMS). You can’t give the funds to the minor until he or she reaches a specific age (often 18, 21 or 25). Upon reaching that age, the trustee transfers the property and any income to the beneficiary.
You can avoid gift taxes with a 2503(c) Minor’s Trust. As long as the gift is received, gifts valued at $15,000 or less (per recipient per year) are generally exempt from federal gift taxes. Gift taxes don’t apply to Minor’s Trusts since they don’t transfer the asset outright.
There’s an exception to this rule in IRS Code *2053(c). Minor’s Trust assets are eligible for the $15,000 tax exemption as long as:
- The minor is the sole primary beneficiary of the trust,
- A trustee has discretion on income and principal distributions
- The beneficiary receives all trust assets and generated income at age 21.
- If the beneficiary dies before age 21, the entire trust is made payable to the beneficiary’s estate.
You can make Minor’s Trusts tax-free while keeping the inheritance from the beneficiary until they’re 21. Find out more about these Minor’s Trust changes by consulting an experienced Tulsa estate planning lawyer.
Additionally, the grantor of a Minor’s Trust can exclude those assets from their estate for estate taxes (if they’re not the trustee). You can transfer anything to a 2053(c) Minor’s Trust (unlike UTMA accounts, which have limitations).
Special Needs Trusts
Our office gets a lot of calls about special needs kids. You can set up a Supplemental Needs Trust if you need help supplementing the person’s needs, or if that person gets government benefits.
The purpose of a Supplemental Needs Trust is to protect assets and provide benefits to people with disabilities without affecting their eligibility for government health care benefits, including long-term nursing care Medicaid benefits.
It’s also possible to benefit a special needs person with a Supplemental Needs Trust by receiving a settlement, gift, or inheritance in a way that protects their eligibility for government benefits.
Beneficiaries have legal title to the assets in Supplemental Needs Trusts. Supplemental Needs Trusts are valid as long as they meet these requirements (42 US Code 1396p(d)(4)(A)):
- It is an irrevocable spendthrift trust
- Beneficiary is significantly impaired
- It is established before the beneficiary reaches age 65
- It functions under a separate employer identification number
- It includes requisite Medicaid payback provisions
Trustees of Supplemental Needs Trusts are allowed to pay for only those expenses that the government will not cover. The funds aren’t intended to support and maintain the beneficiary, nor are they intended to provide regular fund distributions.
In most cases, Medicaid will disallow asset transfers made specifically for the purpose of qualifying for Medicaid. However, a disabled beneficiary can set up their own Supplemental Needs Trust (first-party, self-settled).
The Medicaid payback provision is required for first-party, self-settled Supplemental Needs Trusts. Upon the death of a beneficiary, a Medicaid lien is imposed on any assets in a Supplemental Needs Trust.
The provision doesn’t cover third-party trusts.
How about people without government help who have special needs?
There’s also something we call Special Needs Trusts for these cases. Special Needs Trusts, unlike Supplemental Needs Trusts, are designed to meet the specific needs of a person regardless of government assistance.
In a Special Needs Trust, you designate a trustee to take care of the beneficiary in the instance that you are not able. These trusts are valuable for those who have concerns that the beneficiary may not be capable to handle themselves financially.
An inheritance or assets of someone with special needs can be protected with a special needs trust. A special needs person can also keep their government benefits by setting up a trust.
As with Supplemental Needs Trusts, Special Needs Trusts can be either first-party, self-settled trusts or traditional third-party trusts. First-party trusts may have
Medicaid payback provisions.
Here’s a look at the different types of trusts and combinations of trusts available to meet everyone’s specific needs.
A Tulsa estate planning attorney will sit down with you, discuss your goals, and design a plan tailored to your life.
(To learn about some of the most common misunderstandings in estate planning, and how you can avoid them, click here to download our short guide, The Four Biggest Estate Planning Myths).
Call us at 918-246-6813, or click here to book a call, to talk about how you can protect yourself and the people you care most about!
