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Living Trusts
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 meed
with a qualified attorney for specific advice regarding your
estate and for professional preparation of all legal documents.
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California
Probate Code 13100-13101: Affidavit of Small Estate
Counties Served:
Los Angeles County
Orange County
Ventura County
Santa Barbara County
San Diego County
San Bernardino County
Nearby
San Fernando Valley Cities:
Los
Angeles
Calabasas
Woodland
Hills
West
Hills
Sherman
Oaks
Encino
Tarzana
Northridge
North
Hollywood
Reseda
Van
Nuys
Additional
Nearby cities:
Burbank
Glendale
Pasadena
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