A Living Trust – One of Many Tools for Protecting Your Estate
Trusts & Estate Planning Attorney
by Kira S. Masteller
818.907.3244
A living trust is not the only vehicle that individuals need to consider when completing an estate plan. There are several other types of trusts and tools, some of which are equally as important as a living trust, necessary to accomplish and complete planning goals.
A well rounded estate plan must also consider potential income tax problems, estate and generation skipping transfer tax consequences, as well as planning trusts for minor children or protecting a child’s inheritance from his or her spouse or creditors.
In the first of a six part series on Gift Tax and Estate Planning blogs, I’ll explore how Living Trusts can help protect and secure you and your family members for the future.
What is a Living Trust?
A living trust is a way of holding title to your assets so they will not be subject to Court Conservatorship or Probate Proceedings during your life or upon your death.
The trust governs what happens to your assets if you are incapacitated during your lifetime, as well as providing for the distribution of your assets when you die. You can change your living trust while you are living and you keep control of the assets you place in the trust.
Estate for Federal Estate Tax purposes includes:
A living trust also includes estate tax planning provisions so that your family will not pay estate tax unnecessarily.
Estate taxes are presently at a 40 percent rate (of the value of all of your assets when you die). Your assets include your:
- Real Estate
- Personal Property
- Business Interests (Partnerships, LLCs, Corporations, Joint Ventures)
- Money
- Promissory Notes
- Deeds of Trust
- Investment Accounts
- Retirement Plans (such as IRAs and 401(k) plans)
- Life Insurance
- Annuities
If the total value of these assets exceeds $5,250,000 (Federal Estate Tax Exemption in 2013), there will be an estate tax when you die on the amount in excess of the exemption at the rate of 40 percent.
While leaving your assets to your spouse avoids the estate tax at your death, it compounds the estate tax at his or her death. Therefore, it is not always the best strategy to leave all your assets directly to your spouse in joint tenancy or payable upon death accounts.
Instead, there are ways of allowing your spouse to have control over the assets, while still avoiding death taxes on those assets upon his or her death. A living trust will generally provide estate tax planning provisions for a married couple by allocating the deceased spouse’s estate tax exemption to an Exemption Trust upon his or her death, so that his or her estate tax exemption will be fully utilized, thereby reducing the value of the surviving spouse’s estate upon his or her death.
Though a living trust is a very important and basic estate and tax planning tool, it is not the only one. My next blog in this series will discuss Life Insurance, and how you can use that vehicle in conjunction with an irrevocable trust.
Kira S. Masteller is a Gift Tax & Estate Planning Attorney in our Trusts and Estate Planning Practice Group. Contact her for more information via email: kmasteller@lewitthackman.com.