DO YOU NEED A LIVING TRUST?
Many wonder whether setting up a living trust is a good idea. There are many advantages to establishing a living trust.
First and foremost, you can avoid probate. Whether you die without a will (intestate) or with a will, your property must be probated. Probate is a process whereby the court supervises the administration of your estate, i.e., decides to whom your property will pass either through a will or by the laws of intestate succession. As many who have experienced it will tell you, probate can be a nightmare. It is time consuming and expensive. The probate process is also a matter of public record so others can be privy to your personal affairs.
A living trust is the only way to avoid probate. It transfers your assets into a trust while you are alive. Typically you (and your spouse) are the trustees of the trust during your lifetime. The person you designate becomes the trustee and disburses the assets of the trust according to your wishes after your death. As a result, when you die, ideally, there is nothing in your name to probate.
As a result, the short answer to the question posed above is YES, A LIVING TRUST IS A GOOD IDEA EVEN IF THE ESTATE TAX GOES AWAY.
Other Advantages to a Living Trust
In addition, with the government scrambling for money, many believe that Congress will enlarge estate taxes. In the event that the threshold for estate taxes is lowered, a trust may save your estate some money in federal taxes by making full use of your individual exemption amounts. You can pass along more to your heirs, free of estate taxes with a living trust. Ordinarily, when you pass property to your surviving spouse, all of your property is included in your estate for federal estate tax purposes. However, your spouse is allowed to use what's called a "marital deduction," so that no estate tax is due when you die. While this is great for the time being, down the road, that same property will be subject to estate tax when the surviving spouse dies. By using the marital deduction, you have wasted the use of the individual exemption amount.
With proper planning, however, you can utilize both individual exemptions amounts. This is done by having some of your property transferred to a "Bypass Trust." These assets are not eligible for the marital deduction.
In the typical estate plan for a married couple, on the first spouse's death, the property will be allocated to three trusts. Half of the community property assets and all separate property assets of the surviving spouse will go into what is called the Survivor's Trust (i.e., Trust "A"). The survivor will be allowed to do with this property whatever he or she wishes including the power to gift or devise it to whomever they want.
The "B" trust (called the Bypass Trust) will consist of an amount equal to the applicable exemption amount for that year usually calculated with reference to a particular formula. (If someone dies, the Bypass Trust could be funded with $3,500,000 for example.) The reason it is called the Bypass Trust is that this amount of money will be included in the Decedent's estate (the first dead person) for federal estate tax purposes, but will not be eligible for the marital deduction. Because it will only consist of the applicable exemption amount, however, the survivor will not pay any federal estate tax on this amount. The survivor will have what's called a life estate in the Bypass Trust which will include the right to income from the Bypass Trust and power to invade the principle under certain ascertainable standards, i.e., for health, education and welfare. Because the surviving spouse only has a life estate, however, nothing passes when the survivor dies so this amount bypasses the survivor's estate. As a result, you have saved a significant amount of money in federal estate taxes.
The "C" Trust (called the "Marital Trust") will consist of the balance of the estate. Again, the surviving spouse will have a life estate in the "C" Trust with power to invade principle under certain ascertainable standards. As to this trust, the executor will most likely make a "Q-Tip election" which will qualify these assets for the marital deduction. The election is basically an agreement by the surviving spouse that he or she will include those monies in the surviving spouse's estate when he or she dies.
Aside from fully utilizing both exemptions, this type of structure has the added advantage of limiting the surviving spouse's ability to give away the property in the "B" Trust. Through use of this arrangement, the spouse that is first to die has more control over where his or her estate passes ultimately.
For all these reasons, a living trust remains a great estate planning tool.
Contact the Law Office of Robert J. Spitz
We provide a confidential consultation to every new client.You may request a free consultation, if your litigation case qualifies for a contingency fee.
To set up an appointment with an experienced Ontario living trust attorney, contact us online or call us at 909-395-0909. The office is open Monday through Friday, between 8:30 a.m. and 5:30 p.m. We accept credit cards.
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