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Ask people why they work hard and save their money, and often
you'll hear that it's not only because they want to raise their own standard of
living; they want to leave something behind for their children too.
Understandably, they don't want a big chunk of that money to be used up for
probate lawyers' fees or death taxes. That's where living trusts come in. They
don't save you a penny while you're alive, but after death they can eliminate
the need for probate -- and probate fees -- and they can also reduce or
eliminate federal estate (death) tax. More of the property you leave goes to the
people you want to inherit it. But there is a confusing variety of living
trusts. Most people aren't exactly sure how they work or which kind they need.
And paying a lawyer to explain it all may leave you more in the dark -- not to
mention poorer -- than when you started. This is a rundown of the
basics, so you can decide whether or not you need a living trust and if so, what
kind. The two most common types of living trusts are:
- a basic living trust
(for an individual or couple), which avoids probate, and
- a "living trust with
marital life estate" or AB trust, which both avoids probate and saves on
estate tax.
A Basic Living Trust
Unless you expect to owe federal
estate tax at your death or your spouse's, a basic living trust to avoid probate
may be all the trust you need. It allows property to avoid probate and to pass
to the beneficiaries you name quickly and efficiently, without the hassles and
expense of probate court proceedings.
A married couple can use one basic living trust to handle
both co-owned property and the separate property of either spouse. To
create a basic living trust, you (the grantor or settlor) transfer ownership of
some or all of your property to the living trust. Because you make yourself the
"trustee," you don't give up any control over the property you put in trust. If
you and your spouse create a trust together, you will be co-trustees.
In the trust document, you name the people or institutions
you want to inherit trust property after your death. You can change those
choices if you wish; you can also revoke the trust at any time. When you
die, the person you named in the trust document to take over -- called the
successor trustee -- transfers ownership of trust property to the people you
want to get it. In most cases, the successor trustee can handle the whole thing
in a few weeks with some simple paperwork.
The Surviving Spouse's Rights
The surviving spouse has limited
power over the assets in the life estate trust. The extent of this power depends
on the terms of the trust, within certain limits set by the IRS. If a surviving
spouse is given more power than IRS rules allow, the surviving spouse becomes
the legal owner of the trust property -- exactly what you don't want. When the
maximum powers are granted, the surviving spouse:
In other words, the surviving spouse has the right to use the
entire trust principal for what really concerns older couples: the surviving
spouse's healthcare and other basic needs. After the death of the surviving
spouse, the marital life estate trust property is distributed to the final
beneficiaries, chosen by the deceased spouse in the original trust document. The
surviving spouse's property is also distributed to her beneficiaries.
The purpose is to stimulate thought for our clients
and those professionals we network with. One should consult with a qualified
professional prior to implementing any mortgage, taxation or estate planning strategies. If
you are an estate planning, mortgage, real estate or financial planning professional receiving this newsletter, please call
our office and introduce yourself to us. We are always seeking to grow our
referral network and expose more service professionals to our client base.
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