Off-Label Trusts: Part One—A Toolkit from Pets to Philanthropy

An “off-label” trust is not a formal legal term but a useful way to describe trusts that are adapted creatively for purposes beyond their traditional uses. Borrowing the term from prescription medications, where a drug is used successfully for an originally unintended purpose, “off-label” describes a novel or special-purpose trust.  

Trusts, whether revocable or irrevocable, are inherently flexible tools. They are used in estate and financial planning, as well as asset management. Their structure can be tailored to meet a wide range of specific, sometimes unconventional, needs.

Trusts are both designed and drafted, usually by lawyers. All well-drafted and properly funded trusts avoid probate of assets at death. Dynasty trusts avoid probate for as long as the trust dictates, sometimes for generations or perpetually. 

All well-drafted trusts address the incapacity of a decision-maker through a succession of designated roles, such as trustees, trust protectors (who oversee trust administration), or surrogates (who act on behalf of incapacitated parties). Beyond these benefits, trusts offer advantages specific to certain assets or property types, addressing their unique challenges.

The most important of attribute of a trust over a business entity, to many clients, is privacy. Unlike business entities, which are established and regulated under state and federal law, trusts are private arrangements subject to minimal government oversight. Business entities in most states require initial establishment through a state government and periodic reporting. States have inherent authority to request or inspect documents and records from business entities. Most state governments lack inherent authority over trusts. Additionally, a revocable trust and some irrevocable trusts can operate without a separate tax identification number, requiring no separate tax return.

In recent years, more states have adopted statutory trust codes, but these typically do not regulate trust purposes beyond confirming that trusts must be created for a legal or lawful purpose. These codes formalize the enforcement of common law regarding trustees’ duties, such as fiduciary responsibilities in managing assets and the duty to notify and inform beneficiaries. A well-drafted trust should incorporate these requirements to ensure statutory compliance and inform trustees of their responsibilities.

Most trusts are marital, domestic (e.g., unmarried cohabitating persons), or single-person trusts serving as will substitutes to avoid probate. However, trusts can be created by anyone or any group and have evolved to provide solutions for a variety of challenges and interests. Below are examples of “off-label” trusts.

Trusts for General Shared Property Ownership

Instead of a partnership, limited liability company (LLC), or joint ownership, a trust can hold and manage shared property, such as a family vacation home,  a hunting cabin and/or land, a community garden, or conservation property. Using a trust offers several advantages:

    -Centralized Management: A trustee oversees maintenance, expenses, and usage schedules, preventing disputes among co-owners (e.g., siblings or cousins) common in partnerships or tenancy-in-common arrangements. In a trust, management and financial burdens can be alleviated for those least willing or able to participate.

    -Flexibility: The trust terms can specify rules for use (e.g., who gets the property during hunting season), cost-sharing, and what happens if a beneficiary wants out or dies.

    -Continuity: Unlike a partnership, which may dissolve upon a partner’s death, a trust continues seamlessly with successor trustees and beneficiaries.

  -Dispute Resolution: A trust can incorporate alternate dispute resolution techniques, such as mandatory arbitration or mediation, to reduce litigation costs.

    -Protection from Third Parties: Trusts shield assets from third parties, such as ex-spouses, creditors, or predatory interlopers.

    -Avoiding Probate: Trust-held property bypasses probate, ensuring the asset remains intact without court delays or costs.

Land trusts, such as those in Illinois, are often used for privacy or joint ownership. I practiced law in Illinois from 1988 to 2000, during that time transitioning several real estate syndicates and limited partnerships to Illinois Land Trusts to minimize regulatory compliance and expense. 

For example, a revocable living trust could hold the property during the grantors’ lifetimes, allowing them to retain control, then convert to an irrevocable trust upon their death with detailed instructions for heirs on managing and enjoying the property. Alternatively, an irrevocable trust with tax benefits or creditor protection can manage either a whole property or just mineral interests for a family in perpetuity. These “off-label” uses sidestep the complexities of partnership or entity agreements while leveraging the trust’s ability to govern long-term, multigenerational ownership.

Trusts to Resolve a Complicated Probate Estate

Using a trust to manage distribution of a probate estate with many beneficiaries is a clever adaptation, especially to close probate efficiently and mitigate risks like a beneficiary’s death prolonging administration.

With many beneficiaries, probate can drag on if someone goes missing, contests the estate, or dies mid-process (triggering sub-estates). Ancillary administrations for property in multiple states can further prolong the process. Trusts simplify beneficiary sprawl by allowing interests to be conveyed to a trust earlier in the  probate process, with the executor, appointed as trustee, handling administration outside the probate process according to the decedent’s will and beneficiaries’ wishes.

What if a beneficiary dies during the probate process?  A separate probate estate must be established for the recently deceased, sometimes in a different county or state than the original. Even if a beneficiary of probate estate has a revocable trust to avoid probate of their assets, the interest in the probate estate cannot be transferred to the trust because it was not 'owned' by the beneficiary before death. This interest must be administered in a second probate This delays the original probate and burdens the beneficiary’s family with additional probate costs. Additionally, probate and trust estates often have different beneficiaries and outcomes. For example, spousal claims that affect distributions from an estate with a will (see my article, Second Marriage? Fund Your Trust!).

Many probate administrations, particularly those involving family farms, see beneficiaries agree to sell property to avoid ownership complexity, but few anticipate the risks, costs, and delays over time.  By conveying interests to a trust, beneficiaries can lock in preferences regarding distributions.   Immediately after the probate court conveys the property, deeds are prepared to transfer it to the trust, minimizing risks like a beneficiary’s death or disappearance. While this involves added expense and complexity, it is often preferable to the costs, delays, and individual burdens of subsequent probate administrations.

This approach is “off-label” because trusts are typically pre-death planning tools, not probate cleanup mechanisms. Yet, it’s a practical workaround for sprawling families or estates with complex assets, ensuring efficient estate closure.

Dynasty and Incentive Trusts

Designed for generational wealth management, dynasty trusts are often repurposed for unconventional assets, family governance, or generational incentives, such as education or successful marriages, while protecting assets from individual risks.

Incentive trusts encourage specific behaviors or achievements and discourage others. For example, a trust may condition distributions on milestones like graduating college, maintaining sobriety, or holding a job. A parent might establish a trust paying $10,000 annually to a child only with proof of full-time employment or passing drug tests, with funds held back or redirected if conditions are unmet. 

Dynasty trusts with incentives can shape behavior across generations.  While trusts protect wealth, incentive trusts shape beneficiaries’ life choices, functioning like a contractual agreement within a trust structure.  These trusts are particularly "off-label" if they incorporate specific modern wishes like encouraging coding classes, discouraging social media engagement, or encouraging investment in digital investments.  

Pet Trusts for Animal Care

Pet trusts, growing in popularity, ensure the care of pets or investment animals after the owner’s death or incapacity. I have prepared such trusts as stand-alone trusts or embedded within revocable living trusts, covering traditional pets (e.g., horses) and exotic animals (e.g., llamas, reptiles).

These trusts are funded with assets to cover expenses (food, veterinary care, grooming) and appoint a trustee and caregiver. For example, a person sets up a $50,000 irrevocable trust for their dog, with a friend as trustee and a neighbor as caregiver, ensuring the dog’s lifestyle is maintained, with remaining funds going to charity afterward. The trust can prohibit euthanasia for convenience, requiring the trustee to find a suitable owner or transfer the animal to a no-kill shelter with funds for its lifetime care to prevent abandonment.

Although increasingly common, pet trusts are “off-label” because trusts traditionally serve human beneficiaries. The Uniform Trust Code and state laws, such as Ohio Revised Code § 5804.08 and Missouri Revised Statutes Ch. 456.4-408, explicitly permit them.

Gun Trusts for Firearms Ownership

A gun trust manages ownership and transfer of firearms, especially those regulated under the National Firearms Act (NFA), like suppressors or machine guns. The trust holds title, allowing multiple trustees or beneficiaries to use the firearms without individual ATF registrations. It simplifies inheritance, bypassing probate and ensuring compliance.

For example, a collector creates an NFA trust to own a suppressor collection, naming children as co-trustees who can use the suppressors, with provisions for transferring ownership upon the collector’s death without ATF scrutiny.

Trusts typically handle real estate or cash, not regulated items like firearms, making gun trusts “off-label.” They effectively navigate complex Second Amendment and regulatory issues.

Privacy Trusts for Anonymity

Some trusts shield the identity of property owners, often for real estate or high-value assets. The trust holds title, with its name appearing on public records instead of the individual’s. A trustee manages the property, and the beneficiary retains control.

For example, a celebrity uses an Ohio Legacy Trust (OLT) or Delaware Statutory Trust (DST) to buy a vacation home, keeping their name off the deed to avoid attention, with a professional trustee handling transactions. The OLT and DST are used because they offer asset protection, though their mechanics differ. A DST protects the grantor from trust liabilities (e.g., property debts) using non-recourse financing but does not typically shield beneficial interests from personal creditors. An OLT protects trust assets from the grantor’s and beneficiaries’ creditors, provided no fraudulent transfer occurs, after an 18-month creditor claim period.

Trusts are typically for estate planning or tax benefits, not anonymity. Privacy trusts leverage the trust’s ability to obscure ownership, useful for high-profile individuals.

Business Succession Trusts

A trust can facilitate the transfer of a family business to the next generation or employees without a formal sale. The owner places company shares into a trust, with terms dictating control shifts. For example, a founder sets up a trust holding 51% of a company’s shares, transferring voting control to a daughter after she serves five years operating the business, ensuring a smooth handoff.

These trusts are “off-label” because trusts are typically for personal wealth, not business operations. They blend estate planning with corporate succession, avoiding the rigidity of buy-sell and asset purchase agreements agreements.  They often incorporate future possibility of inheritance as currency to purchase current interest in a business.

Art or Collectibles Trusts

Trusts manage and preserve valuable collections (art, rare cars, wine) for future generations or charity. The trust holds the collectibles with instructions for maintenance, insurance, display, or sale. For example, an art collector creates a trust to maintain Salvador Dalí paintings, allowing children to display them, with the collection donated to a museum after the last child’s death.

Trusts typically handle liquid and tangible assets, not niche items requiring specialized care, making this use “off-label.”

Digital Asset Trusts

Trusts increasingly manage digital assets like cryptocurrency, social media accounts, or intellectual property (e.g., NFTs). The trust holds access keys or ownership rights, with the trustee tasked with transferring or deleting them. For example, a crypto investor sets up a trust holding Bitcoin wallet keys, directing the trustee to distribute proceeds over 10 years, with a clause to delete private accounts.

Digital assets involve unique concerns, such as sensitive information or high management risks, often warranting a separate hybrid Digital Assets/Privacy/Anonymity Trust. Trusts predate the digital age, so this use is a modern twist requiring creative drafting.

Charitable Lead or Remainder Trusts for Mixed Goals

Modern charitable trusts balance giving with family benefits in unconventional ways. A charitable lead trust (CLT) pays income to a charity, then the remainder to family; a charitable remainder trust (CRT) pays family first, then charity. For example, a grantor sets up a CLT to fund a community garden for 15 years, with the remainder going to grandchildren if they volunteer, blending charity with incentives.

In Off-Label Trusts:  Part Two: Fandom Trusts, we will discuss fandom and hobbyist trusts.

These examples show how trusts stretch beyond will substitutes or tax shelters, tackling everything from pets to pistols to philanthropy. While “off-label trust” is not a term of art, the practice of bending trusts to unusual purposes is effective. Trust adaptability makes them a Swiss Army knife for creative problem-solving. A well-drafted trust document that anticipates family dynamics, asset specifics, or beneficiary sprawl is key.

Importance of Senior Tax Deduction Returns in 2021

A tax break for seniors that all but disappeared last year has resurface this year. This tax break benefits retirees in their 70s and up. These tax breaks are qualified charitable distributions (QCD), "which allow individual retirement account holders to divert some of their federally taxable required distributions to charity." The deductions allow IRA holders to make donations and reduce their federally taxable income. 

The pandemic limited the effectiveness of this deduction last year.  The Cares Act effectively cancelled required minimum distributions (RMDs).  Even though you could still use QCDs, their effectiveness was almost completely eliminated due to the cancellation of RMD requirements in 2020:  those who didn't want the taxable income could simply forego the RMD, and thus, there was no need to take take advantage of the QCD.

Now, retirees can take advantage of these contributions. However, if considering QCDs, you should consult with your financial or tax  advisor to discuss the best way to take advantage of these contributions, or possibly to stay away from them.  There are limitations and possible pitfalls. 

For more information, go here.

Source: Allan Sloan, "A tax break for retirees is back. Here’s how to use it — and what to avoid," Washington Post, March 18, 2021. 

Family Conflict is Biggest Threat to Your Estate Plan

For the second consecutive year, family conflict is considered by professionals as the leading threat to estate planning. The three greatest threats to estate planning are family conflict, market volatility, and tax reform.  These conclusions represent the consensus of estate planning experts, at least according to a recent survey conducted by TD Wealth.

The survey included 105 respondents who attended the 53rd Annual Heckerling Institute on Estate Planning in January, including attorneys, trust officers, accountants, charitable giving professionals, insurance advisers, elder law specialists, wealth management professionals, educators and nonprofit advisers.  Nearly half of these estate planning experts identified family conflict as the biggest threat to estate planning in 2019. 

The survey explored the various causes of family conflict when engaging in estate planning, citing the designation of beneficiaries as the most common cause of conflict. Other leading factors included not communicating the plan with family members and working with blended families.

“Family dynamics have always played a critical role in estate planning. As we start to see more blended families, we expect these conversations to become even more prevalent and challenging,” said Ray Radigan, head of private trust at TD Wealth . “Estate planning comes with the responsibility of motivating families to communicate through difficult times, which requires regular dialogue and complete transparency. To minimize risk, we encourage families to invite everyone to the table to participate in open and honest conversation about their shared goals and objectives.”

Fortunately for Ohio residents, recent law changes make arbitration clauses in trusts more powerful, discouraging expensive and protracted contests.  Moreover, when combined with in terrorem ("no contest") clauses, a trust can be a powerful tool to eliminate the cost and expense of what may be unavoidable family conflict and disagreement.     

Market volatility was also identified  as a threat by respondents in 2019, with nearly a quarter of respondents identifying volatile markets as the biggest threat to estate planning this year. This was up from 12% in 2018.  According to Radigan, this is not surprising because many clients view lifetime gifting as an important component to their estate plan.

“These gifts, however, should only be made if enough assets are retained to provide support during retirement years,” Radigan said in a statement. “While market fluctuations are certainly worth watching and can cause concern for potential gift givers, we encourage our clients to keep a long-term view when investing and remember that short-term market movements are no match for a robust estate plan and a well-balanced portfolio.”

The sweeping tax overhaul enacted in 2017 is making a broad impact on estate planning, according to the survey.  Following the increase in the federal gift and estate tax exemption, estate planners are introducing various strategies to allow clients to take advantage of the exemption. About one-third of respondents propose clients consider creating trusts to protect assets, while 26% suggest clients plan to minimize future capital gains tax consequences and 21% agree to gift now while the exemption is high.

“Estate planners are now emphasizing the importance of creating trusts for the benefit of their loved ones so that assets can be protected from future claims,” Radigan said in a statement. “For example, rather than provide a child with an outright gift or bequest, many parents are creating trusts as a means of protecting assets from future divorce claims. Additionally, these trusts can be used to ultimately protect loved ones from themselves or other loved ones.”

Additionally, 40 percent of planners believe clients will continue to give the same amount to charities as they did in 2018, and 21 percent expect clients to donate more.  That is good news for charities, and welcome news to those who might be considering charitable giving since it means a consensus of planners agree that charitable giving can accomplish at least one objective in  an estate plan.  

Art Collector's Estate Claims Attorney's Drafting Error Cost It $25 Million

The estate of a prominent art collector has sued the attorney who drafted the art collector's will for legal malpractice. The lawsuit, filed in the New York Supreme Court, claims the attorney's error will cost the estate $25 million in taxes.

Collector Robert Ellsworth, whom The New York Times once called “the king of Ming” for his renowned collection of Asian art, hired attorney George Bischof to draft his will. In 2010, Bischof drafted a will that left Ellsworth's estate outright to his friend, Masahiro Hashiguchi, with six charities as contingent beneficiaries. In 2013, Ellsworth changed his will to name Bischof as the sole trustee of a residuary trust. Under the new will, the residue of the estate was left to a discretionary trust that benefited Hashiguchi during his life and then the remainder of the trust was left to charity.

The lawsuit alleges that Bischof drafted the will in a manner that did not allow the trust to qualify as a charitable remainder trust and therefore meet the criteria for the federal estate tax charitable deduction. According to the lawsuit, because of the "negligently and carelessly" drafted trust, the estate will have to pay $25 million in estate taxes that it wouldn't have had to pay if the trust had been properly drafted.

For more about this case from artnet, click here. 

Salvation Army: Partners in Caring

I just received my annual "thanks" for supporting the Salvation Army.

Your compassionate support is providing struggling families with food, clothing, shelter and much-needed hope. Thank you!

You are having a tremendous impact in our community! Through your concern and generous support of The Salvation Army, you are reaching out to our neighbors in greatest need.

Thanks to you, hungry children are being fed. Families are finding safe shelter. And people in crisis are being helped back on their feet.

This past year you have helped us reach out with:

• Food services for the hungry

• Nights of safe shelter

• Disaster Emergency help for families in need

• Clothing and furniture distributions for the less fortunate

• Counseling and spiritual direction for lost souls.

And so much more, more than we can count. Thank you so much!

Of course, no thanks is necessary.  I have witnessed first hand the difference this fine organization makes, and have  testimony in abundance from clients and friends recounting the beneficial efforts of the Army of volunteers.

It strikes me though, that I never see slickly produced commercials by the Salvation Army tugging at my heart-strings, asking me to adopt a child, a pet, a family, or a community.  I can recall no television or radio advertisement with the haunting voice of a popular singer rising and falling as a voice-over urges me to donate and "donate now."

I cannot recall the Salavation Army paying to sponsor a sports event,  professional sports franchise, concert, or music festival as have so many other charities.  Yet the Army continues to wage war against poverty, hunger, homelessness, substance addiction, and to fill physical, and spiritual needs.

My wife and I have numbered as amazing clients three who owe their very lives to the Salvation Army.  One family recounted to us how, following WWII, their entire family and community in Eastern Europe were dispossessed of home, property, and wealth- for being German.  Despite that these families had no ties or connection to Germany for five generations before the war, Germanic names were despised after the war. The fact that the patriarch of the family had died fighting Nazi Germany alongside the rest of the free world saved these families for a time, but the service was soon forgotten and they were made refugees. But, there were no aid programs, and traditional charities refused to help.  The Salvation Army, however, came to the rescue.  The family recounted an eerie and ironic journey by train during which Jewish refugees and Christian refugees shared the similarities of their plight as they were rescued from Eastern Europe, some to ultimately reside in Akron, Ohio.

The family serves the Army to this day.

A Dutch family described a. similar situation in a more recent time.  Political upheaval in Central America stranded their father.  The company for whom he worked maintained kidnapping insurance, and often retained experts to rescue kidnapped employees, but because their father was not kidnapped, they simply abandoned him.  Working through local churches in the region, the Salvation Army was able to rescue those otherwise trapped and abandoned.

The Salvation Army does amazing work.   

You can help.  Consider a donation here.