ThissecondlessononEstatePlanningprovidesanintroduction toTrusts.

Atrust isalegalentitysetupforsomespecificpurpose.Ingeneralitholdspropertyforthe futurebenefitofsomebody. Thereisagoodchancethatyourealreadyinvolvedinatrust.Lookatthestatementof yourIRA,401kor403b.YouwillseewordslikeSoandSoTrustCompanyFBOyour

name.OrSuchandsuch,BankCustodianforRolloverIRAofyourname. Essentially,alloftheretirementassetswithinyouraccountbelongtoalargerpool ofmoneythatisheldinatrustforyourprotection.Thistrustaccountissegregated fromthegeneralassetsofthefinancialinstitution.Theydholdingyourpropertyin trustforyourbenefit.Althoughthisisatrust,wewillfocusmoretruststhatpeople setupforeachothersbenefits.

BeinginvolvedinaTrustissortoflikeplayingapartinaplay. Regardlessofwhoyouarein reallife,inthetrustyouhavetoplaythepartassignedtoyou.Sinceyoumayhavemultiple parts,youneedtorememberwhatpartyouareplayingwhenyoutakeaction. ItbeginswiththeSettlors orTrustors.Theyarethepersonswhodecidetocreateatrust. Theyalsosettherulesofthetrust.Ofcoursetherearesomegovernmentruleshere,but forthemostpart,ifyoucanimagineasetofrules,thereisasmartlawyerwhocanthinkof awaytowritethemintoatrust. ThetrusteeplaysthepartoftheChiefOperatingOfficer.Hesinchargeofcarryingoutthe intentofthetrustbasedonthewordsinthetrust.ThepropertyisheldintheTrustees name,notpersonallybutastrustee. Thebeneficiaryisthepersonorentitytowhichpropertymaybedistributed.

stscomeinTwoTypes: RevocableandIrrevocable. Revocable TrusttheSettlorcanchangetherules. nIrrevocableTrustthe rulescannotbechangedexceptbyCourtaction.

TheClassicLivingTrustis revocable.TheLivingTrusthasyouasthe Settlor,asaTrusteeand asaBeneficiaryandisalsocalledanIntervivostrust.

Alivingtrusthasanumberoffeatures. Thetrustownsyourpropertyeventhoughyouretainfullcontrolofit. Youstillpaytaxesontheincomegeneratedbythetrustatpersonalincometaxrates. Itremainspartofyourestateforestatetaxpurposes. ItspecifieswhoshouldserveasTrusteeincaseofyourincapacityordeath. Itspecifieswhattodowiththepropertyincaseofyourincapacityordeath.

Thepropertydoesnotchangehandsatdeath,anditremainsinthenameofthetrusteeof thetrust.Forthatreasonitdoesnotpassthroughprobate.Inotherwords,abasicliving trustallowspropertytoavoidprobateandtoquicklyandefficientlypasstothe beneficiariesyouassign.

Withmarriedcouplesthereisthepossibilitythateachmayhavedifferent ideasabouthow theirpropertyshouldbedistributed. Whiletheyarebothalivetheywillhavetoworkitoutthemselves.Butwhatdoyouthink happensifthebothdieinacarwreck?Oroneofthemdiespredeceasestheother.These scenariospresentmajorchallengesindevelopingasuitableLivingTrust.Letstakealookat this.

Dealingwithsimultaneousdeathisprettystraightforwardinmodestestates. Inpreparing theTrust,youestablishwhatisSeparateProperty,JointProperty,andCommunityProperty. TheTrustwilldirectthe successor Trusteeto dividejointandcommunitypropertyequally intoeach descendantestate andseparatepropertytotheestateoftheindividualowner. Incomplicatedorunbalancedestates,theresthepossibilitytomakeotherchoicesinorder tominimizeestatetaxes.

TheABCTrustisaconceptualframeworkforhandlingthedivisionofpropertyofamarried coupleatthefirstdeath.Itcanbecustomizedtomeetyourspecificneeds.Itiscalledan ABCTrustbecausetheclausesdirectthetrusteeoftherevocablelivingtrusttodividethe trustintothreetrustsknownastheATrust,theBTrustandtheCTrust (atthedeathofone ofthespouses)

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In ordertobepreparedforthepotentialofwidelyseparateddeaths,provisionsshouldbe madetotakethefollowingactionsatthedeathofthefirstspouse. TheTrusteeisdirectedtosplitthepropertyofthelivingTrustintotwoorpotentiallythree successortrusts. TheATrust,oftencalledtheSurvivorsTrust,isarevocabletrustwiththeSurvivingSpouse astheSettlorandcontainshisorhershareoftheproperty. TheBTrust,oftencalledtheBypassTrustorCreditShelterTrust,isanirrevocabletrust containingthedeceasedSpouse'spropertyuptotheestatetaxexclusionamount. However,thedeceasedsspousehasalreadymadeanunchangeableelectionastowhois nextinlinetoreceivetheirassets.Thelivingspousehasnorealabilitytoalterthatwritten command.Thiscouldpotentialprotectthechildrenofthedeceasedspouseiftheliving spousefallsoutoffavorwiththemorhasmorechildrenoftheirownwithanewpartner. TheCTrust,asanirrevocabletrustcontainingtheremainderofthedeceasedspouses propertywiththesameunalterableelection.

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Thustheprimaryproblemsaresolved ThesurvivingspousegetunfetteredaccesstotheirpartofthejointEstatebyvirtueofthe ATrust. Thedeceasedspousegetstodeclarethewho,what,andwhen,forthedistributionoftheir estate. Theycantakefulladvantageoftheestatetaxexclusionforboth. ThisconcludestheLesson.Inthenextlesson,wellexamineGiftsandEstateTaxes.

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