- My attorney says that my wife and I should each have separate Trusts and that an AB Trust (joint Trust) will not work in my state.
This is nonsense. We are talking about federal law, not state law. There ahs never been a case in which the IRS has denied both federal estate tax exemptions in a good A-B Living Trust because of residence in a separate property state. I am appalled at the enormous amount of misinformation about Living Trusts that is being spewed forth by the legal profession. Much of it is ignorance (they don't teach Living Trusts as a basic course in law school), much of it is intentional disinformation to steer you into the probate process, and the balance is just pure greed (an attorney gets twice as much money for two Trusts as for one). Also, an A-B Trust is quite complex and difficult to draft to satisfy the IRS requirements; a single Trust is much simpler to draft. And so you end up with two single Trusts -- and an administrative nightmare.
- How is a Living Trust named?
The most appropriate way to name a Living Trust is as follows:
The Smith Family Trust, dated August 18, 1997, John J. Smith and Mary Ann Smith, Trustor(s) and/or Trustee(s).
- Is an A-B Trust actually two different Trusts?
An A-B Trust is one Trust while both spouses are living and even after a spouse dies. The terms Trust A and Trust B are used to differentiate between the decedent's share of the assets (Trust B) and the survivor's share of the assets (Trust A). Only upon the death of the first spouse does the distinction between the A part of the A-B Trust and the B part have any significance. Other than the A and B parts, which are used to apportion assets, the Living Trust is a single entity. Assets identified as being in the B Trust are thereafter insulated from further estate taxes.
- Where do I register my Living Trust documents?
The Living Trust document does not have to be registered anywhere. In fact, on the death of the trustor (or trustors), the only person who has a right to see the document is the successor trustee; no one else has a right to view the document -- not even by court subpoena.
The name of the Living Trust is submitted only to the Internal Revenue Service, in order to request a Tax Identification Number for the Trust. Even this step is unnecessary when you first draw up your Trust; however, the number will be needed upon the death of a settlor.
- What happens if my daughter divorces or remarries and changes her name?
One of the nice aspects of a properly written Living Trust is that your daughter's name does not make any difference. In your Trust, you have identified your children in your Pour-Over Will as your children. No matter what name the children may go by in the future, they are still your children. You need not change any of the children's names in your Living Trust.
- What are the beneficial rights of the surviving spouse to the Decendent's Trust B?
At every seminar, at least one attendee wants to know why the surviving spouse is entitled to only 5 percent or $5,000 of the Decedent's B Trust each year. All too often, people only seem to hear this particular right of the surviving spouse, while entirely missing the other rights -- which are, by far, the most important!
The surviving spouse is the beneficiary of the Decedent's B Trust (and the Decedent's C Trust, where appropriate). The tax code specifically provides that the surviving spouse has three rights:
- The right to all of the income
- The right to all of the principal that is necessary to maintain the same standard of living as before the decedent passed away
- The right to $5,000 or 5 percent of the assets (in the B Trust only), whichever is greater; once a year -- for any reason, regardless of how frivilous
These three rights in effect give the surviving spouse the right to use the funds in the Decedent's B and C Trusts without restriction. In fact, the only real restriction is "the right to use the principal to maintain the same standard of living." Who is responsible for determining the standard of living? Why, of course, the trustee is responsible for making that determination. Who is the trustee? Usually, the surviving spouse is the trustee. There fore, there really is no restriction!
However, the one thing that the surviving spouse cannot do is to change the beneficiaries designated in the Decedent's B and C Trusts or to jeopardize the beneficiaries' rights to the assets in the Decedent's B and C Trusts. Such a restriction is very apropriate when a husband and wife have been married before and each have children from former marriages. Specifically, the surviving spouse may not reach into the B and/or C Trust, take out $200,000, go to Las Vegas, and then gamble away the money. The decedent's children have a right to say, "Mother, you effectively took that $200,000 from your side -- the Surivivor's A Trust." The surviving spouse also does not have the right to reach into the Decedent's B and C Trusts, take out funds, and move them to the A Trust -- so that, upon the death of the surviving spouse, a greater share of the estate will go to the heirs of the surviving spouse.
- What are the rights of the surviving spouse to the assets in Trust A?
Since the assets in the Survivor's Trust A are the assets of the surviving spouse, the surviving spouse may do anything with these assets -- including being able to remove the assets from the Trust entirely.
- How old must a child be in order to be a successor trustee?
The minimum age for a successor trustee is eighteen years.
- How is the successor trustee forced to abide by the wishes of the creators of the Living Trust?
To me, the greater part of the word trustees is trust. Consequently, a trustee should be someone whom you trust. Two or three children acting together as successor co-trustees can often be better than only one child, particularly when there is a question about the proper way to handle various aspects of the estate. Successor co-trustees tend to monitor each other. Every parent should have his or her children read the section of this book titled "Successor Trustee" in Chapter 6, so that each of them understands his or her fiduciary responsibility as a successor trustee.
- Will I lose any of my income tax deductions by placing my assest in a revocable Living Trust?
No, tax deductions are not lost by placing your assets in a Living Trust. A Living Trust is transparent as far as income is concerned. A revocable Living Trust has absolutely no impact upon income taxes from either an income or expense viewpoint. With a Living Trust, you will continue to file your Form 1040 Individual Income Tax Return, as you have in the past.
- If I put my home in a Living Trust, can I still deduct my mortgage interest?
Since a revocable Living Trust has no impact upon income taxes and since you are still in control of your assets, you will continue to file your income and expenses -- including your mortgage interest -- on your Form 1040 income tax return, as you have done in the past.
