In the last 2 months, I have encountered 3 widows that did not understand and did not make proper use of their living trusts. So that your family does not make the same mistakes, please give a copy of this article to your beneficiaries.
A living trust is “invisible” during your lifetime. It does not save you any income taxes, it does not file a tax return and you do not file any forms. But upon death, the living trust springs into action.
Let’s take the case of a married couple. When the first spouse dies, the typical “A-B” Trust instructs that the estate be divided into two portions. This division will help save or even eliminate estate taxes. However, if you never make the division, you waste much of the financial benefit of having the trust in the first place. In fact, not making the split can cost an additional $240,000 in estate taxes. Here’s what to do to make the split.
Make a list of all assets and divide them into 2 categories--growth assets and income assets. Leave the house and the income assets in the survivor’s trust (the “A” portion). Place the growth assets into the “B” trust (the bypass trust).
These assets can then grow for the next generation, totally protected from future estate taxes. In fact, as I mentioned in a previous article, one of the best assets to place in the “B” trust is life insurance because it can pay off several times the amount invested, free of estate and income taxes.
Placing the wrong assets in each trust can result in extra income taxes for you and for your beneficiaries. If you would like to have your trust accounts reviewed to insure that you are making the best allocation of assets between your two trusts, please call 925-935-5488 for an afternoon appointment. Each situation is different and you should get the advice of an advisor.