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Benefits of an A-B Trust for Married Couples
Benefits of an A-B Trust for a Husband and Wife Who
Live in CA
A couple in California have many reasons to establish a living
trust. A living trust can help their estate survive onerous
estate taxes, avoid probate if they both die, and side step
the need for a conservatorship if either one (or both) are incapacitated.
While the State of California has eliminated the California
Inheritance Tax, the Federal Government retains the
"United States Estate Tax," popularly called
the "death tax." This tax, based on assets
owned at the time of death, is still in effect, although
any assets passing to a surviving spouse who is a US
citizen are exempt. While every individual has an exemption
and can pass between $1,000,00 and $3,500,000 depending
on the year of death, any amounts above that are taxed
between 46 and 55 percent.
| There is no tax on the assets left to the
surviving spouse if the husband and wife leave everything
to each other and the survivor is a US citizen. When the
second dies and the assets are passed to children or other
relatives, they are subject to tax if the assets exceed
the current tax exemption. If a living trust is used,
the first spouse to die can set aside between $1,000,000
to $3,500,000 in an irrevocable trust, as can the surviving
spouse. Between the two, $2,000,000 to $7,000,000 can
be passed to their children tax free, twice the amount
possible if no trust is in effect. |
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The probate process, which is a legal proceeding intended
to validate someone's will and designate who should
receive the assets, can take nine to eighteen painful
months to settle. In the end, an "executor"
is appointed by the court whose job it is to handle
the assets and administer the estate. The executor's
fees, as well as those of the attorney and the Court,
are determined by law and are based on a percent of
the value of the assets. Statutory probate fees usually
amount to 5-6% of the estate's total worth.
Joint tenancy of the assets can eliminate the probate process
and will let them pass to the survivor with no legal procedures.
While this works very well for a husband and wife, if other
people such as children are involved, difficulties can arise
if the child becomes bankrupt or defaults on his debts, since
the assets can be claimed by creditors.
Probate problems can be avoided by use of a
living trust, where a trustee manages the assets in accordance
with a written trust
agreement that is in effect until the trust ends. If a member
of the trust dies, the trust survives, and a new trustee is
named if the trustee dies. A properly executed and funded living
trust will avoid probate even if both spouses die.
If all the assets are held by someone who becomes incapacitated
and no living trust exists, a conservatorship of the estate
may be required. This legal proceeding is much like a probate,
and usually results large court costs and attorney
fees. The possibility of such a conservatorship can be eliminated
if there's a living trust. The assets covered by the trust are
managed by a trustee, and no court intervention occurs. If the
trustee becomes incapacitated or dies, a new trustee who is
named in the trust assumes control of the assets.
| A couple with no living trust and $2,000,000
in assets would have no estate tax or probate costs in
2004 when the first spouse dies. On the death of the surviving
spouse who now owns the entire amount singly, however,
estate taxes can be as high as $460,000, plus statutory
probate fees of approximately $66,000, totaling nearly
$525,000 in federal estate taxes and costs. In this situation,
a living trust would avoid all of the federal estate taxes
and probate costs. While legal and accounting advice would
be required to administer and distribute the trust upon
death, trust administration fees would be less than $20,000.
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Thus, the couple's heirs would inherit over $500,000 if there
is a living trust in place. $500,000 can send a lot of grandchildren
to college!
For additional information, please contact THE MAMOLA LAW FIRM at (800) 440-5294.
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| CAUTION: This website is to provide visitors with basic information.
Every legal situation is different, and no information on this website
is to be construed as legal advice on any specific question. Additionally,
the information on this website is for informational purposes, no
warranty is made as to the accuracy of any information contained therein,
or its applicability to any particular situation. This website must
not be used as a substitute for legal advice from qualified lawyer
or legal counsel. No attorney & client relationship or privilege
is formed by visiting this site or by sending my office any unsolicited
e-mail. Therefore, initial emails must not contain any confidential
information. I may already represent parties adverse to you and cannot
advise or represent you until I check for conflicts. I am licensed
only in California, and may offer my services only to those residing
or doing business in California, unless associated with local counsel
or lawyer in accordance with other states' laws. The Mamola Law Firm, APC is not currently licensed to practice in the
State of Nevada.
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