If you are married, and you and your spouse have assets in excess of $2 million, you may want to talk with your advisor about a more complex living trust that can reduce probate expenses and federal estate taxes.
An AB trust, also known as the marital deduction trust, provides financial comfort to the survivor of the two of you, while ultimately passing the maximum amount of property to your children or other beneficiaries upon the death of the second of you. It’s one of the few times in life you really can have it both ways.
Under an AB trust, the surviving spouse technically does not own the assets, but has considerable power over their use. For example, if maximum powers are given, the survivor will receive all interest and other income from the trust property.
The survivor may use the trust property, for example, living in a house held in trust. And the survivor may spend any of the trust property for reasons of health, education, support, and maintenance of his or her accustomed standard of living.
In other words, the surviving spouse has the right to use all of the trust principal for what really concerns most couples: the surviving spouse’s health care and other fundamental needs.
Asset management
A living trust allows you to arrange for the management of your assets, both while you are alive and after you are gone.
As mentioned earlier, you can serve as your own trustee. However, if you no longer wish to manage your assets day to day, you can choose a bank or a trusted advisor to act in that capacity. If you choose someone besides yourself, the trustee will be guided by your instructions and investment strategy. And, of course, the trustee will be responsible for all of the paperwork and chores associated with the management of your assets.
Neither the instructions in the trust agreement nor the trust itself need be permanent. The directions that you give today may be altered at any time. The trust can even be revoked, and your assets transferred back to you.
If you are incapacitated
Depending on where you live, the state could name a guardian or conservator to manage your affairs if you are unable to do so. Under a living trust, you can name someone to take over management if you are incapacitated, even when you are the trustee.
If you haven’t yet made the decision to put your assets into a living trust, you may want to look at an alternative—a standby living trust.
A standby living trust lets you protect your assets should you become ill or incapacitated. The trust is activated only when you are unable to manage your investments, and only for as long as necessary.
Privacy
“When an estate goes through probate, there is public disclosure of both the assets and the how you dispose of your property under the will,” says Chas Jones, partner and estate planning specialist in the Thomas & Libowitz law firm in Baltimore, Md. “However, if you set up a living trust, the terms of disposition are not revealed. That’s especially important if there is contention in the family.”
How much does a living trust cost?
You get what you pay for! Some people fill out forms they find on the Internet, only to incur significant expense later for having done so. Since a living trust is such an important step for you to take, hiring a lawyer is very good advice.
When you retain a lawyer, you should understand what services are to be provided and how much they will cost. You should understand the terms and conditions of your relationship with the lawyer along with his or her fees.
Costs will vary from lawyer to lawyer. The costs should include the lawyer’s charges for reviewing your assets and their present title; discussing your estate plan with you; preparing your living trust, will, and other documents to your satisfaction.
“Even if you set up a living trust, you will also have a so-called ‘pour-over’ will,” Jones says. “We strongly recommend that because you may have overlooked placing all your assets into the trust.”
Lawyers commonly charge about $1,000 to draw up a simple living trust. But if your situation is more complex, legal fees will be substantially higher.
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