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Living trusts enable you to
control the distribution of your estate,
and certain trusts may enable you to
reduce or avoid many of the taxes and
fees that will be imposed upon your
What is a Trust?
A trust is a legal arrangement under
which one person, the trustee, controls
property given by another person, the
trustor, for the benefit of a third person,
the beneficiary. When you establish a
revocable living trust, you are allowed to
be the trustor, the trustee, and the
beneficiary of that trust. When you set up
a living trust, you transfer ownership of
all the assets you’d like to place in the
trust from yourself to the trust. Legally,
you no longer own any of the assets in
your trust. Your trust now owns these
assets. But, as the trustee, you maintain
complete control. You can buy or sell as
you see fit. You can even give assets
What happens
upon your death?
Assuming that you have transferred all
your assets to the revocable trust, there
isn’t anything to probate because the
assets are held in the trust. Therefore,
properly established living trusts
completely avoid probate. If you use a
living trust, your estate will be available
to your heirs upon your death, without
any of the delays or expensive court
proceedings that accompany the probate
Are there
Trust strategies?
There are some trust strategies that serve
very specific estate needs. One of the
most widely used is a living trust with an
A-B provision. An A-B trust (also known
as a bypass trust) enables a married
couple to pass on up to double the
exemption amount to their heirs free of
estate taxes. However, with enactment of
the 2010 Tax Relief Act, some couples
may no longer need an A-B trust to
maximize the estate tax exemption for
both spouses. But before you make a
decision about the use of a bypass trust,
there are a number of issues to consider.
What about changes
in the estate tax as a
result of the 2010
Tax Relief Act?
The law increased the applicable
exemption amount to $5 million
retroactively to January 1, 2010, with a
35 percent tax rate. The increased
threshold alone eliminates many
people from being subject to the federal
estate tax. An interesting new provision
is "portability" of the exemption to the
surviving spouse, which allows
surviving spouses to use their spouses'
unused exemption plus their own,
enabling a couple to exempt up to $10
million from federal estate taxes.
However, provisions of the 2010 Tax
Relief Act are in effect only through
December 31, 2012, unless Congress
amends or extends the law. So in 2013,
not only does the portability provision
expire but the federal estate tax
exemption is scheduled to fall from $5
million to $1 million, which would
subject many more households to the
federal estate tax. Furthermore, many
states have their own estate or
inheritance tax, or both, and none
currently has portability provisions.
This means that when married couples
leave all their assets to their spouses,
the surviving spouse will be able to use
only his or her state exemption.
Additional considerations favoring a
trust are the ability to shelter appreciation
of assets placed in the trust, to protect
assets from creditors, to benefit children
from a previous marriage, and to
preserve a married couple's state estate
tax exemptions.
Metta Financial Group, Inc.
Your Gateway to Financial Success
The information provided here by
Michael Politowicz, an Enrolled
Agent is to assist you in planning
for your future.
The information in this article is
not intended to be tax or legal
advice, and it may not be relied on
for the purpose of avoiding any
federal tax penalties.
You are encouraged to contact
Metta Financial, for all your tax
and accounting services.
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