Living Trusts

Establishing a living trust allows you to handle your affairs and control your estate to ensure that your beneficiaries receive exactly what you intend. In addition, certain living trusts might limit or eliminate fees and taxes normally applicable following your death.

Understand How a Trust Works
Although you legally relinquish ownership rights to the assets that you commit to the trust, if you establish a revocable trust, you can make yourself the trustee, the trustor, and the beneficiary. By setting up a revocable trust, you can still control the purchase and distribution of your assets as long as you convert ownership back to the trust prior to your death. After you pass away, the trustee, or the person in charge of distributing your assets, makes sure that he/she divides your property amongst your chosen beneficiaries. Finally, a properly prepared trust, much like the one already described, is usually not subject to the probate process.

Designate an A-B Provision
In certain circumstances, including those involving a spouse, it is very helpful to establish a trust with an A-B provision. This method basically creates two trusts, an "A" trust and a "B" trust, after the death of the first spouse that divides the assets between the beneficiary and the decedent, respectively. Each trust is subject to estate taxes and one personal exemption, thereby resulting in double the exemption amount without incurring estate taxes.

In addition to monitoring and maintaining the "A" trust, the beneficiary has certain privileges relative to the "B" trust, such as collecting income and drawing on principal to support conditional needs. These rights remain with the beneficiary until his/her passing, which marks the point where the heirs, most likely the children in this case, are the recipients of the remaining assets. The remaining assets are once again excluded from probate and have the chance of bypassing federal estate taxes if the amount falls below the exemption amount.

This information is presented to educate the reader and does not constitute professional tax and legal advice.

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