Living Trusts & Surviving Spouses

By John Cromwell

A trust is an estate planning device created when a grantor surrenders his property to a separate legal entity for the purpose of benefiting select individuals. A trustee named by the grantor holds the trust property in his name for the benefit of the beneficiaries and manages the property according to the trust's terms. A living trust is one established by a living grantor, often with the grantor serving as the first trustee. The rights of the spouse to the trust property when the grantor dies depends on state law and the terms of the trust.

A trust is an estate planning device created when a grantor surrenders his property to a separate legal entity for the purpose of benefiting select individuals. A trustee named by the grantor holds the trust property in his name for the benefit of the beneficiaries and manages the property according to the trust's terms. A living trust is one established by a living grantor, often with the grantor serving as the first trustee. The rights of the spouse to the trust property when the grantor dies depends on state law and the terms of the trust.

A/B Trusts

An A/B trust is typically set up for couples with large estates. An A/B trust is a living trust that splits into two when one spouse dies. The first trust is designed to hold as much of the grantor's property as is sheltered from the federal estate tax by virtue of the unified credit. In IRS terms, a credit is an amount that reduces or eliminates tax; the unified credit is applied to gift and estate tax. For a decedent dying in 2012, up to $5,120,000 can be sheltered in the first trust by the unified credit. The other separate and distinct trust is designed to hold the remainder of the decedent's property, which is sheltered from the federal estate tax by the unlimited marital deduction. A/B trusts are designed to eliminate or reduce the federal estate tax liability of a married couple over the deaths of both spouses.

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QTIP Trusts

A Qualified Terminable Interest Property (QTIP) trust is typically used by a remarried grantor who wants to provide for his current spouse but ultimately wishes to leave his property to his children. The QTIP trust makes the surviving spouse the beneficiary of the trust for the remainder of her life; she can use the trust property and its income, but she cannot dispose of the trust's property. When she dies, the first spouse's children become the trust's beneficiaries. A QTIP trust is also used to defer paying estate tax on the trust property.

Pour-Over Will

A pour-over will is a will used in conjunction with a living trust. A grantor may want all his property placed in a trust when he dies, but he might not want to put all his property in trust while he is still alive. A pour-over will is one way for someone to achieve that goal. With a pour-over will, a person creates a living trust and funds it with some of his property. When he dies, his pour-over will transfers whatever specific gifts the grantor wants to make and then places the remaining property in the trust. The pour-over will may contain a provision stating that certain assets should go to the surviving spouse instead of going into the trust.

Spouse's Elective Share

If a deceased spouse leaves nothing or very little to his spouse, the surviving spouse can decline to accept what she is left with and claim the elective share of the estate, typically a larger portion, as defined by the state's probate code. While codes vary, the Uniform Probate Code has influenced most states’ probate laws and has been adopted by 18, making the UPC a good basis for general discussion. Under the UPC, a spouse can claim 50 percent of the marital-property portion of the augmented estate. The augmented estate includes the probate estate plus any property that the decedent surrendered ownership over but still got to control or benefit from, such as a living trust he created. The marital portion is a percentage of the augmented estate based on the number of years the surviving spouse was married to the decedent.

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Marital Estate Rights After Death

References

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California Irrevocable Trust Laws

An irrevocable trust is an estate-planning tool designed for the long-term management of assets, which are permanently transferred into the trust. There are several types of irrevocable trusts, but the common denominator is that the settlor – the person who creates the trust -- gives up control and ownership of his property; however, California law does provide for modification of an irrevocable trust under certain circumstances.

What Are the Disadvantages of an Irrevocable Trust?

A trust is a legal device that permits a grantor to place assets under the control of a trustee, then who administers the assets for the benefit of beneficiaries named by the grantor. A living trust is a trust created while the grantor is still alive -- as opposed to a testamentary trust, which is created by the terms of the grantor's will. A trust is irrevocable if the grantor cannot unilaterally revoke it.

The Types of Trust Funds for a Minor

By setting up a trust, you can place assets under the control of a trustee, for the benefit of another person, whether an adult or a minor. A trust has several advantages for the beneficiary and the person who sets it up: The trust does not have to go through probate when the grantor dies, and -- depending on how it's set up -- it allows the grantor to avoid taxes on income generated by the trust assets. There are several different types of trusts that can benefit a child who's not yet ready to handle financial responsibilities.

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