Summary of the advantages of a Living Trust

Whether you are single, married, divorced, or widowed, if your assets exceed $166,250 (or any amount if real estate is involved), your heirs will be forced to experience probate unless you have established a Living Trust. Avoid the delays of up to two years or more for settling the estate.
No 120-day waiting period for notice of creditors.
No need to file petitions and reports to the probate court as with a Will.
The Trust can enable your heirs’ income to continue without interruption after your death.
All property or income is immediately distributable in accordance with the provisions of your Trust, and at the times you specify.
No court costs or publication expenses and no Executor’s fees. Also, attorney fees are substantially reduced compared to attorney fees in probate which are set by statute and are based on a percentage of the gross asset value, not the net.
Privacy. Since a Trust eliminates probate, no information concerning the decedent’s estate can become public knowledge.
Not as readily subject to challenge as a Will. Generally, Living Trusts contain “no contest” clauses or other techniques engineered to reduce or eliminate challenges.
Out of state probate is avoided. Regardless of where you live or move to, your moves do not affect your Trust.
As Trustee of your Trust, you retain complete decision-making control over your assets and may buy, sell, withdraw, or add to your Trust at any time.

Built in Avoidance of Conservatorship

If you become physically or mentally incompetent and cannot serve as Trustee, you designate your Successor Trustee such as a family member, a bank or a Trust company without the necessity of a court supervised conservatorship.

You then have the opportunity during your lifetime to determine whether the Trustee is doing a good job and/or whether the Trustee should continue or be discharged.
The Trustee can be given discretionary powers to provide for your comfort and support should you become incapacitated due to illness or accident.
You eliminate court action that could declare you incompetent for either physical or mental reasons.
Your Trust eliminates the cost of a court-appointed guardian for minors or conservators for incompetents. Since you eliminate the need for regular accounting to the court, you also eliminate the resulting fees.
Heirs do not have to make decisions about the management of assets which have been placed in the Trust.

Tax-Saving Potential

Income taxes are payable on Trust income by the individual creating the Living Trust, just as though there were no Trust. Use of an “A/B” (or “Unified Credit”) Trust will preserve the estate tax exemption of the first spouse to die, which otherwise typically would be forfeited due to a failure to plan properly. Estate & Gift Tax Provisions of the Tax Relief Act:

Year In Which Death Occurs (The “Applicable Exclusion Amount”)
2020 and beyond $11,580,000.00*

*This amount is subject to a cost of living adjustment each year.

Gift Tax Provisions
Beginning in 2018, the annual exclusion for gift tax purposes increased to $15,000*; and
Beginning in 2020, the lifetime exemption for gift tax purposes shall be $11,580,000*.

*These amounts are subject to cost of living adjustments each year.

Reducing Federal Estate Taxes By Using a Credit Shelter Trust for Married Couples

What is a Credit Shelter Trust? A Credit Shelter Trust is known by many names, including Bypass Trust, Exemption Trust, or B Trust. Regardless of the name of the Trust, its purpose is to reduce or eliminate federal estate taxes for a married couple’s estate. This type of estate plan sets up an Irrevocable Trust that will hold the assets of the first spouse to die. The amount transferred to the Irrevocable Trust will not be taxed for federal estate tax purposes when the second spouse dies.

How Does It Work? Let’s look at how the estate of a married couple would be taxed if the couple did not have a Credit Shelter trust:

Example 1:

Assume that a married couple owns $15,000,000.00 in community property and has no estate plan. On the death of the first spouse, all of that spouse’s assets will be transferred to the surviving spouse in accordance with the California intestate succession laws. Regardless of the amount that is transferred, there will be no federal estate tax imposed at this point. Federal law allows an “unlimited marital deduction” to be used when assets are transferred to the surviving spouse, and that deduction eliminates any tax that might otherwise be due. However, when using the marital deduction to transfer assets to your spouse, you are wasting your federal estate tax exemption.

As a result of the death of the first spouse, the surviving spouse now owns the $15,000,000.00 estate, but there is only one $11,580,000.00 exemption available because the marital deduction was used to transfer the entire estate of the first spouse to the surviving spouse. If the surviving spouse dies with an estate of $15,000,000.00, a tax of approximately $1,368,000.00 will be due from his or her estate. There must be a better way. See Example 2 below.

Example 2:

Assume that a married couple with a net worth of $15,000,000.00 has set up a living trust that includes Credit Shelter trust provisions. While both of them are alive, the assets will be held in the revocable living trust. On the death of either one of them, the trust will be split into two trusts: The survivor’s trust and the Credit Shelter trust.

In this example, the deceased spouse’s share of the estate, $7,500,000.00, will be transferred to the Credit Shelter trust. The “marital deduction” will not be used because there are no assets that are transferred to the surviving spouse outright. The Credit Shelter trust and the surviving spouse are two separate taxpayers for this purpose. The surviving spouse will manage both trusts, will receive the income from the exemption trust and may spend the principal of the Credit Shelter depending on how it is structured. As a result, the exemption amount for the first spouse to die is not lost because his or her assets were transferred to a taxpayer other than the surviving spouse. Although this may seem like a minor difference in the estate plan, establishing the Credit Shelter trust will save the couple’s estate $1,368,000.00. If the surviving spouse dies with an estate that is not more than the exemption amount that is allowed in the year of death, the surviving spouse’s estate will pay no federal estate tax. Moreover, since the Credit Shelter trust is irrevocable the surviving spouse may not alter the plan of distribution and/or transfer the assets to a new spouse or other third party ensuring the wishes of the first spouse to die are honored and protected and blood lines preserved. Your attorney will discuss with you the many different ways to structure Credit Shelter during your consultation.