At The Walker Law Firm, we strive to provide compassionate and dedicated representation to our clients. We have an extensive understanding of how to best prepare your estate plan using living trusts to ensure that you receive all the advantages the law allows when planning for your future.
Contact an Orange County living trust attorney to schedule a consultation regarding our California firm’s trust services.
Presently, in 2021, you can pass up to $11.7 million dollars to your heirs free of federal estate tax. Ordinarily, when you pass property to your surviving spouse, all of your property is included in your estate for federal estate tax purposes. However, your spouse is allowed to use what’s called a “marital deduction” so that no estate tax is due when you die. While this is great for the time being, down the road, that same property may be subject to estate tax when the surviving spouse dies under certain circumstances. Basically by using the marital deduction, you have wasted the use of the individual exemption amount.
In the typical estate plan for a married couple, on the first spouse’s death, the property will be allocated to three trusts. Half of the community property assets and all separate property assets of the surviving spouse will go into what is called the Survivor’s Trust (i.e., Trust “A”). The survivor will be allowed to do with this property whatever he or she wishes including the power to gift or devise it to whomever he or she wants.
The “B” Trust (called the Bypass Trust) will consist of an amount equal to the applicable exemption amount for the year, usually calculated with reference to a particular formula. (If someone died in 2021, for example, the Bypass Trust would be funded with up to $11.7 million dollars.) The reason it is called the Bypass Trust is that this amount of money will be included in the decedent’s estate (the first dead person) for federal estate tax purposes, but will not be eligible for the marital deduction. Because it will only consist of the applicable exemption amount, however, the survivor will not pay any federal estate tax on this amount. The survivor will have what’s called a life estate in the Bypass Trust, which will include the right to income from the Bypass Trust and power to invade principal under certain ascertainable standards, i.e., for health, education and welfare. Because the surviving spouse only has a life estate, however, nothing passes when the survivor dies so this amount bypasses the survivor’s estate. As a result, you have saved a significant amount of money in federal estate taxes.
The “C” Trust (called the “Marital Trust”) will consist of the balance of the estate. Again, the surviving spouse will have a life estate in the “C” Trust with power to invade principal under certain ascertainable standards. As to this trust, the executor will most likely make a “Q-Tip election,” which will qualify these assets for the marital deduction. The election is basically an agreement by the surviving spouse that he or she will include those monies in the surviving spouse’s estate when he or she dies.Aside from fully utilizing both exemptions, this type of structure has the added advantage of limiting the surviving spouse’s ability to give away the property in the “B” Trust. Through use of this arrangement, the spouse who is first to die has more control over where his or her estate passes ultimately.
For the many reasons listed above, a living trust remains a great estate planning tool. Please contact our experienced lawyers at The Walker Law Firm for an initial consultation.
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