The most common and basic estate planning vehicles are wills and living trusts. Everybody should have a will or a living trust, but which one?
Should you have a living trust? To clarify what this type of trust is, a living trust is created by placing some or all of your estate into a trust where you are the trustee and the beneficiary while you are alive. By naming an administrator and secondary beneficiaries before you pass away, the property in the trust will dodge probate.
The title of an article earlier this year in Redlands Daily Facts says it all: “Do I Need a Living Trust?”
For a married couple, another option is an AB or "by-pass" trust. Rather than each spouse leaving their property outright to each other, both place their property into their own revocable trust. When the first spouse dies, the surviving spouse receives income from the decedent’s trust property and in some situations has access to the principal. With an AB trust, the couple's children will typically inherit the trust property after the second spouse dies (as named beneficiaries of the trust). Due to the fact that the surviving spouse doesn't actually own the trust assets, they are not part of the surviving spouse's estate. As a result, those assets would not be subject to tax at the second spouse's death.
Trusts can be a real benefit to you, but they can get tricky quite quickly. It's best to speak with a knowledgeable estate planning attorney to examine your specific situation and needs. Often strategies for probate avoidance, tax savings and multiple marriages may be confusing as between each other and it is also critical to find an estate planning attorney that can explain all of these to you.
Reference: Redlands Daily Facts, February 25, 2014: “Do I Need a Living Trust?”