A Revocable Living Trust is a legal document which contains your instructions for what you want to happen to your assets when you die.  However, unlike a Will, a Trust avoids probate at death, it can control all your assets, and it prevents the court from controlling your assets if you become incapacitated.

A Trust is a contractual relationship in which a “Trustor” transfers certain property to a “Trustee” in trust for the benefit of a “Beneficiary”.   Oftentimes, the Trustor and Trustee will be the same person(s), so that even though technically you are giving up ownership to the property transferred to the Trust,  as the Trustee you would still maintain control over the property.  This transfer of ownership is the basis for avoiding probate.

    WHAT IS PROBATE?

Probate is the legal process where the Court sees that after your death, all debts are paid and your assets are transferred according to your Will.  If you do not have a Will, the Court will distribute your assets according to state law.  Probate is a long protracted process which can get expensive because of the attorney's fees necessary to complete this process.  Also, since Probate is a legal process, your financial affairs become public record and can be easily obtained by anyone who wants to know.  The legal fees involved in a typical probate is set by statute.

4% on the first $100,000
3% on the next $100,000
2% on the next $800,000
1% on the next $9 million.
0.5% on the next $15 million


Estate Value    Statutory Fee
$200,000       $  7,000
$400,000       $11,000
$600,000       $15,000
$800,000       $19,000
$1,000,000    $23,000
$2,000,000    $33,000


BENEFITS OF A LIVING TRUST

A Revocable Living Trust distributes your assets after your death without the time and expense of Probate.  Your financial situation remains private and you can take full advantage of the Unified Marital Deduction Credit.

WHAT IS THE UNIFIED MARITAL DEDUCTION CREDIT?

The Unified Credit allows every American citizen to pass a certain amount of their estate to heirs tax-free. This credit can be used during one's lifetime (e.g. a businessman wishes to gift his daughter $1 million), but is usually used after someone has died and the estate is being distributed.  With the Taxpayer Relief Act of 1997 and the Tax Relief Act of 2001, the Unified Credit has gradually been increasing. In addition, the top estate tax rate will be decreasing until 2010, when estate and gift taxes are fully repealed. The American Taxpayer Relief Act of 2012 raised the maximum Federal estate tax rate from 35 percent to 40 percent:

Year            Unified Credit     Married Couple Combined       Tax Rate

2022           $12,060,000            $24,120,000                       40%

2023           $12,920,000            $25,840,000                       40%

2024-2025  est $12,920,000 to $13,100,000 w/ inflation adj.  40%

2026  The Unified Credit will dropped back to it's pre-2018 rate to an estimated $6,180,000 (w/ inflation adjustment) or approximately $12,360,000 per married couple but at a 45% Tax Rate.

If your spouse is not a U.S. citizen, he/she will not be entitled to utilize the marital deduction.  No marital deduction is allowed unless the property is transferred to a Qualified Domestic Trust.  When either spouse is not a U.S. citizen, it would be necessary to establish a Qualified Domestic Trust to take advantage of the applicable tax exemption.  Generally, a Qualified Domestic Trust will be included in a Living Trust when either spouse is a non-U.S. citizen.

HOW A LIVING TRUST WORKS

A Living Trust is created by executing a document designating a Trustee who will administer and distribute the assets of the Trust in accordance with your instructions.  Usually, the Trustee will be yourself and your spouse, however, you can name anyone you wish.  The Trust document will provide instructions on how the assets of the Trust are to be managed, what happens upon the death of either spouse, who the beneficiaries will be after the surviving spouse dies, and how the Trust assets will be distributed.   Only the assets that are conveyed and transferred to the Trust are exempt from probate and controlled by the Trust.  Therefore it is important to transfer all assets which you want the Trust to control in order to avoid Probate.
The following is an example of how a basic Trust works:

1.  Upon the death of the first spouse, the Living Trust may transfer all the assets to the surviving spouse or it may be divided into two separate Trusts, a surviving spouse Trust and a disclaimer trust.  This would be dependent upon the size of the entire estate.

2.  If the net value of the estate is greater than $11,180,000, an amount up to $11,180,000 of the assets are placed in the surviving spouse's Trust and the remainder is placed into the Disclaimer Trust.

3.  When the surviving spouse dies, the assets in both Trusts are distributed to the Beneficiaries as set forth in the Trust.

Not only is a Living Trust an effective way to avoid the high cost of probate and in keeping your financial affairs private, but it is also an efficient way to minimize and defer estate taxes, leaving sufficient income and principle available for the surviving spouse to maintain their accustomed lifestyle.

 The information provided is of a general nature and should not be acted upon or applied to your specific situation unless you have consulted with your attorney.  We hope that this has been helpful.  If you have any other questions or comments, please do not hesitate to call.