FAMILY LIVING TRUSTS. LAWYERS
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A Living Trust is a vital component of an estate plan, and part of estate planning documents prepared for you while you are alive. In order for a Trust to work properly, you must transfer most of your assets to your living trust. Title to some assets cannot be transferred to the trust, such as IRA accounts. While you are alive and well, you are the Trustee of the Trust. Since you are the trustee, you manage the day-to-day operations of the Trust while you are alive and well. Normally, while you are alive and have capacity, the Trust is revocable. This means that you have full control over the assets and that can spend all the money in the Trust, revoke or cancel the Trust, amend or change the terms of the Trust, and change any of the beneficiaries of the Trust. You select one or more successor trustees in your Trust document. The successor trustee is the person or persons who will manage the Trust after you are no longer able to do so.
In the event of your incapacity or death, the successor Trustee steps in and manages the Trust for you. If properly funded, the selection of the successor trustee is a very helpful estate planning tool in avoiding a conservatorship proceeding. The successor Trustee can give you income and principal for your benefit while you are alive. Normally, the primary successor trustee is your spouse, if you are married. For most unmarried persons, the Successor Trustee can be one of a child, another person, or a bank.
Assets which are properly transferred to the Trust normally escape Probate. Estate Planning can result in a significant savings to your heirs. Probate Fees in California are Statutory and Extra-Ordinary and can range between two percent and ten percent of your estate.
In case of married persons, the Trust can take advantage of the Marital Deduction and can be set up to save a substantial amount of estate taxes. Each person is allowed to transfer a certain limit during their lifetime, or after their death, tax-free. In 2007, the amount that can pass without Federal Estate Tax is $2,000,000. This is called the unified credit. This means that if a married couple's trust is set up properly, then that couple can transfer up to $4,000,000, by using the marital deduction, tax-free. If the married couple does not take advantage of the marital deduction and does set up their estate plan properly, by leaving all of his or her estate to the other spouse, then that couple loses one of their unified credits. This can result in a $2,000,000 loss, and can cause a substantial amount of estate tax. ****The exempt amount from Federal Estate Tax for decedents dying in 2012 is $5,000,000 per person. This sum is subject to change to $1,000,000 at the end of 2012.
In order to take advantage of both unified credits, a married couple can create an AB Trust. When both spouses are alive and well, the A and the B Trust are totally revocable. The income or principal is paid both spouses. When one spouse passes away, the Trust is divided into two SubTrusts. One Trust is called the Decedent's Trust and the other Trust is called the Survivor's Trust. The Decedent's Trust contains the deceased spouse's marital share of the assets. The Decedent's Trust becomes irrevocable on the death of the first spouse. To protect the Decedent Spouse's wishes, the surviving spouse cannot change this portion of the Trust. However, all income of the Decedent's Trust will normally be paid out to the surviving spouse. The principal of the Decedent's trust is available to the surviving spouse if he or she needs it for his or her health, education, support or maintenance. When the surviving spouse passes away, the balance of each SubTrust is paid out to the beneficiaries of that Trust.
The surviving spouse's share is called the Survivor's Trust. The Survivor's SubTrust remains revocable by the surviving spouse. The surviving spouse can spend all the assets in the Survivor's Trust, can amend or change that SubTrust, can change the beneficiaries, and can revoke or cancel the Trust. The entire income and principal of this SubTrust are paid to the surviving spouse. When the surviving spouse passes away, the remaining balance of the Survivor's Trust is paid out to the beneficiaries of the Survivor's Trust.
One benefit of AB Trust planning is that both spouses can make use of the Unified Credit, thus taking advantage of a significant tax savings.
For most people, the main benefit of proper Trust planning is that the estate can avoid Probate. The heirs can benefit by between two and ten percent of the gross estate by proper estate planning. Additionally, an estate plan can eliminate a substantial amount of time taken in Probate Administration.
This articles and our e-course are not intended to replace specific advice of an attorney and is intended to be educational only. We highly recommend that you need with a qualified attorney for specific advice regarding your estate and for professional preparation of all legal documents.
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