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When you die, your already taxed assets are again taxed by the imposition
of a Federal estate tax based on the net value of your estate. Each
person has an exemption, in the amount of $2 million for 2007, and
it is only after the exemption amount is exceeded that estate tax
is imposed.
Because of the marital deduction (a complete exemption for property
left outright to a spouse), the estate tax may not be an immediate
concern for married couples thinking only about the death of the
first to die. However, a transfer of all of the property of the
decedent spouse to the surviving spouse will increase the estate
of the surviving spouse to the point that on his or her death the
estate will exceed the then exemption amount and estate tax would
be due. The living trust provides for an exemption sub-trust to
rectify this problem.
A Living Trust provides that on the death of the first spouse to
die the trust is split into two (or sometimes three) trusts. One
of these trusts (sometimes called the "survivor's trust"
or "A trust") contains the surviving spouse's share of
the assets and becomes revocable by the surviving spouse. The other
trust (sometimes called the "bypass" trust, the "exemption"
trust, or the "B" trust) usually contains enough property
to take maximum advantage of the exemption amount without producing
any estate tax. It becomes irrevocable on the death of the first
spouse to die, but by its typical terms, the surviving spouse is
entitled to receive its income and, to the extent necessary to maintain
his or her standard of living, its principal.
On the surviving spouse's death, the balance of the trust will
be distributed, either immediately or over time, to beneficiaries
the couple have selected. If there are assets of the decedent above
and beyond the exemption trust, a third trust often called a marital
deduction trust is set up.The exemption trust does not become part
of the surviving spouse's estate and does not increase that estate
for tax purposes. On the death of the surviving spouse, his or her
estate is entitled to its own "exemption", reducing, or
possibly avoiding estate tax liability.
One of the primary reasons for the living trust is to avoid probate
on the death of the trust maker and to implement ideal tax savings
plans through the use of sub-trusts. Living trusts do not provide
any asset protection unless married person's use separate living
trusts or specifically define separate assets within a joint trust.
The ideal time to address asset protection is when your living
trust is set up. We offer a simplified asset protection estate plan
easy and convenient for clients to use and understand. We give you
a family limited partnership to hold assets that are not prone to
producing liability, a family limited partnership to hold your non-dangerous
assets, a qualified personal residence trust to hold your principal
residence, a limited liability company to hold dangerous assets
and a revocable living trust to hold all your "insulated and
protected" assets thereby avoiding probate at your death.
In community property states, when we marry, we take on liability
for our spouse. Our assets become targets not only for our creditors,
but for our spouse's creditors. By separating estates, married people
can insulate their assets from their spouse's creditors. This best
way to make this happen is for the couple to enter into a Pre-Nuptial
or Post-Marital Property Agreement (whichever applies) and for each
spouse to have a separate living trust. The next best way is for
the spouse's to have a joint living trust with separate property
schedules.
The unmarried person trust is set up purely as a means to avoid
probate.
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