Info - Living Trust - AB
Note: This is general legal information intended only to inform the reader. If you need legal advice you should consult an attorney. See entire Disclaimer.
1. Married Couple Names: identify you, the two spouses creating the AB living trust, called "trustors", or "grantors" and generally start with the first name. Unless the law changes, you must be a legally married couple (for federal tax law purposes-husband & wife), in order to create an AB Living Trust here. This means that if you are not legally married, or you are same-sex partners, an option is for each of you to create an individual Standard Living Trust instead. For other possible options you should consult an experienced estate planning attorney.
Enter your name and your spouse's name here. The current official names, as they appear on the driver licenses for example, should be listed. They will appear in the name of the trust.
2. Your State is required as the law differs in each state. In general, the trustors' state is the state where their main legal residence is; that is the state where they live or they have most contacts with by voting there, owning property there, having bank accounts there, etc. If more than one state could be claimed as legal residence, the trustors (you) should consider the possibility that one state might have more favorable estate tax laws than the others. You should consult an experienced estate planning attorney.
3. Original Trustees: To create a valid living trust, the trust must have at least one trustee. The trustee is the person who holds title, manages, and is therefore in control of the trust's property. The trustee can transfer the property in and out of the trust (sell it, etc). This is one important reason why the trust should have the trustors (you and your spouse) as original trustees. You and your spouse will continue to be in control of the property you'll transfer to the trust. When one of the spouses becomes incapacitated or dies, the other spouse will become the sole trustee of the trust. There may be also some tax benefits: if the trust property generates income, that income can generally be declared on the personal tax returns of the trustors who are also trustees, without the need to file a separate tax return.
4. Survivor Spouse's Rights and Duties. The rights and duties of the surviving spouse as the sole trustee of the trust depend on whether or not, a specific disclaimer provision is included in the trust document. This disclaimer provision gives the surviving spouse the option to choose at the time of the first spouse's death whether or not to divide the AB trust property and create two trusts, trust A and B.
Trust A, if created, will control some or all of the deceased spouse's property, depending on how much the surviving spouse decides to put in it. Trust B will control surviving spouse's property and whatever was left from deceased spouse's property. As mentioned earlier, after the death of one spouse, the surviving spouse becomes the sole trustee of the AB trust, or trust A and B if she chooses to divide the property. You may want to give this option (include disclaimer) to the surviving spouse if you are not certain now, when you create the AB trust, how large the size of the properties will be at first spouse's death, and/or how the changing estate tax law effect will be at that time.
To illustrate, let's say that at your death, the AB living trust property is worth $4,000,000: your property is worth $2,000,000, and your surviving spouse's property is also $2,000,000. In the year of your death, the federal estate threshold is $5,000,000, and is expected to stay the same or to go up every year (or better, the federal estate tax was repealed). With the disclaimer included, your surviving spouse has the option to not go to the trouble and expense of splitting up the property in two trusts: the irrevocable trust A (yours) and the revocable trust B (hers); this would make sense as neither your property now, nor the combined property she leaves when she dies later, is subject to estate taxes as they are both less than $5,000,000. One potential disadvantage to consider here is that the surviving spouse's rights over your $2,000,000 are greater than those generally granted to a trustee (of trust A). For example, she can now change your designated beneficiaries; she could not do this as a trustee of your property held in trust A.
If no Disclaimer is included in the AB living trust document, when the first spouse dies, the AB trust is automatically divided in trust A and trust B. Trust A will control deceased spouse's property which is subject to the federal estate tax law that year. Trust A is irrevocable. The surviving spouse would have general trustee rights and duties, and some additional rights as for example, rights to use the income of the trust, and even the principal for medical expenses. Besides that, the wishes of the deceased spouse would have to be carried out (e.g., specific gifts, designated beneficiaries, successor trustee, etc). Trust B would be created with surviving spouse's property and would be subject to estate taxes only at her death. Of course, the surviving spouse has full control over trust B: she can revoke it, amended it for the purpose of changing beneficiaries, etc.
5. Successor Trustee: is the person or institution named to take over the living trust when none of the original trustees (you and your spouse) can act as trustees because of death or incapacity. When one spouse dies or becomes incapacitated, the other spouse continues to be the trustee until she dies or becomes incapacitated. At that point, the successor trustee named here takes over. The successor trustee will be in charge of managing trust's property while the survivor spouse is incapacitated, and of distributing the trust property to the trust beneficiary or beneficiaries when she dies. The successor trustee may be also in charge of managing (investing, etc) the property for a longer period of time if one of the trust beneficiaries is a minor or young adult.
In order to avoid unnecessary conflicts, it may be wise to name the same person as successor trustee of your Living Trust, executor of your Will, and attorney-in-fact of your Durable Power of Attorney for Finances. When choosing such a person, the following are some factors which should be considered: trustworthiness, relationship with the trustors, his/her willingness to serve, his/her skills, and his/her residence. An adult child may be a good choice here especially when he/she is the sole beneficiary of the living trust. The successor trustee can be changed at any time while both spouses are alive. After one spouse dies, the surviving spouse can only change the successor trustee for her trust, trust B. As always, naming an alternate (2nd choice) is advisable here as well, as there is always the possibility that the 1st choice might not be able or willing to serve.
6. Three Wise People who are also trusted should be named here. When the time comes, they will be asked by the successor trustee to decide if both of you are (or the surviving spouse is) incapacitated to a degree which require him/her to step in. For obvious reasons, a successor trustee should not be named as one of these three people. If at least two of them will respond affirmatively and in writing when asked, the successor trustee will take control over the trust property. In addition to the three people's names, descriptive or contact information is welcomed here, as it will facilitate successor trustee's attempt to locate them timely. Examples: John Brown, my brother; Helene Smith, my accountant, Irvine, California.
7. Living Trust's Property. A living trust is not valid without property. What property are you interested in transferring to the living trust? List that property here. It is wise to provide sufficient descriptive information (1) for each property in order to help the surviving spouse or the successor trustee locate it. Also, specify who owns the property (2). If owned by both spouses, it should be indicated so here. Furthermore, indicate whether or not you have a title (3) for the property. Examples: the house at 333 North St., Los Angeles, CA own by me and my wife, we have title; the bank account no: 555-6666, at Chase, Irvine, CA owned by me (husband) only, I have title; the books kept in the apartment located at 222 South St., Orange, CA, owned by both of us, husband and wife, no title.
Very Important: the property listed here will have to be actually transferred to you as trustees of the living trust. This means that for books, furniture, or other similar items for which it is likely you do not have title, a document called "Assignment of Property" has to be used. This document will be prepared for you and attached to the living trust document. After you receive and appropriately sign the living trust document, for items that have title (e.g., house, car, bank account), you'll have to obtain a new title indicating that you hold the property as trustees of the living trust.
8. Who are the beneficiaries of the AB Living Trust*? As a general rule, a living trust is not valid without beneficiaries. Also, the persons who create a living trust (the trustors) should seriously consider naming for each gift, a beneficiary and an alternate ( a second choice beneficiary). This is especially wise when the first beneficiary is a person (not an institution), as there is always the possibility that they would not survive the trustors. Also, in order to facilitate the identification of the beneficiaries when the times come, they should be listed by name, and if necessary, additional information should be provided. E.g., Mike Ross, my son.
Specific Beneficiaries. You don't have to, but each spouse may leave specific gifts to beneficiaries they designate. Examples: my bank account no: 555-6666, at Chase, Irvine, CA, to my daughter, Mary Ross; my Mercedes E320 to Mike Ross, my son, etc. When one spouse dies, her specific beneficiaries will receive the specific gifts left to them by the deceased spouse. The remaining of her property goes into the irrevocable Trust A, and the surviving spouse has the right to use its income and even principal in certain circumstances (e.g., medical expenses) for as long as she lives. When the second spouse dies, her specific beneficiaries will receive the specific gifts left to them, and her final beneficiaries will share the rest of her property (Trust B). Each spouse can make as many specific gifts as they wish. However, consideration must be given to the fact that you will take the most advantage from an AB trust if you leave most of your property to your spouse in trust. Also, if you plan to leave less than half of your property to your spouse, you should consult an experienced estate planning attorney.
Final Beneficiaries. When both spouses die, the wife's final beneficiaries listed here will receive her property (Trust A if she died first), and husband's final beneficiaries will share his property (Trust B if he died second). Most people would name their children as final beneficiaries.
If the wife or the husband names more than one specific beneficiary for a property item, or more than one final beneficiary, generally they also indicates the share of each one (if they don't, the beneficiaries named will receive equal shares of that property). Example: 2/3 of my interest in the books kept in the apartment located at 222 South St., Orange, CA, to my nephew Mark, and 1/3 to my friend Carl Jones. The wife and the husband may also indicate and alternate beneficiary to provide for the situation when the first choice beneficiary predeceases them. Example: the bank account no: 555-6666, at Chase, Irvine, CA, to my son, Mike Ross (1st choice); alternate beneficiary (2nd choice): Mary Ross, my daughter.
For as long as they are alive and mentally competent, each spouse can change their mind and change their own beneficiaries.
Naming a minor (under 18 ), or a young adult (under 35) as beneficiaries, including alternates, is not a problem. You will have the opportunity lower to name someone to manage the property until they reach the respective age.
9. Tax Returns. Should surviving spouse be required to send a copy of the Trust A annual tax return to deceased spouse's final beneficiaries?
Some people may wish to make certain that if they die first, their final beneficiaries are informed by the surviving spouse about how is she managing Trust A, where the property they left is. Each spouse can make their selection here. If the final beneficiaries are not happy with how the surviving spouse is managing the property they are designated to inherit, they may ask a court to intervene. The court may order the surviving spouse to change her actions, and may even replace her as trustee of Trust A, the deceased spouse's trust.
10. Management. How should the property you leave to a minor or young adult be managed?
These provisions are optional but generally recommended if the spouses leave valuable trust property to a minor (under 18) or young adult (age 35), and the spouses have an adult person in mind, who they would like to administer the property until the minor or the young adult reaches a certain age. Note: if the child or young adult has "special needs" because of mental or physical disabilities, you should consult an attorney, as a more complicated trust might need to be created.
UTMA (Uniform Transfers for Minor Act) was adopted in some states, and is generally preferred. Under UTMA, the management ends when the minor reaches the age the trustors indicates (up to age 25 in some states). The person in charge of managing the property left to a minor under UTMA, is called a custodian. You can name a different custodian for each minor. Most people would name their spouse as custodian. An alternate (2nd choice) custodian is recommended here as well, to account for the situation when the first choice is unable or unwilling to serve (just type in a second name, if you have one, and indicate that is a 2nd choice). Some possible options: the successor trustee named earlier, or the personal guardian of the minor named in your will. "Ends at Age" box should be used to provide the age of the minor (up to 25) at which the management should end and the property should be transferred to the minor.
You may want to choose a Child Subtrust if you wish to extend the period of management up to age 35, and/or the property left is considerable. Note: if you choose UTMA and your state did not adopted it, this generally means that the living trust provides for the creation of a child subtrust. The trustee of the child subtrust you create here will be first your surviving spouse. After both of you die or become incapacitated, the successor trustee named earlier, would be also the trustee of the child subtrust.
The box named "Name of Minor 1" is provided to write the name of the minor or young adult to whom the above selections apply. If property is left to more than one minor or young adult, the text area called "Other Minors" can be used to provide their names, how the property should be managed (UTMA or Trust), who should be the custodian, and at what age should the minor/young adult receive the property.
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