Advanced Estate Planning Trusts, etc.

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" rowspan="2" width=185 BGCOLOR="#003333" TEXT="#F7F7FF" bgproperties="fixed" background="191d4c00dduajq.jpg"> <bR> <bR> <bR> <div> <A HREF="id14.htm" TARGET="_top" TITLE="The Trust as an Estate Planning Device"><B><IMG SRC="01109110.png" border=0 width="9" height="17" ALT="previous" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></B></A><B>       </B><IMG BORDER="0" SRC="1x1.gif" HEIGHT="17" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" WIDTH="17"><B>   </B><IMG BORDER="0" SRC="1x1.gif" HEIGHT="17" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" WIDTH="17"><B>       </B><A HREF="id16.htm" TARGET="_top" TITLE="The Danger of Joint Tenancy"><B><IMG SRC="01409110.png" border=0 width="9" height="17" ALT="next" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></B></A></div> <div> <A HREF="id15_m.htm#the_a_b___tax_sensitive___trust_plan_" TARGET="TRLX_Middle" TITLE="Advanced Estate Planning Trusts, etc."><B>The A-B ("Tax Sensitive") Trust Plan</B></A></div> <div> <A HREF="id15_m.htm#the_tax_sensitive_trust_preserves_the" TARGET="TRLX_Middle" TITLE="Advanced Estate Planning Trusts, etc."><B>The Tax Sensitive Trust Preserves the Maximum Exemption</B></A></div> <div> <A HREF="id15_m.htm#summary" TARGET="TRLX_Middle" TITLE="Advanced Estate Planning Trusts, etc."><B>Summary</B></A></div> <div> <A HREF="id27.htm" TARGET="_top" TITLE="Complex Estate Planning (Large Estates)"><B>Estate Planning for the Large or Complex Estate</B></A></div> <div> <A HREF="id14.htm" TARGET="_top" TITLE="The Trust as an Estate Planning Device"><B>Previous Page</B></A></div> <div> <A HREF="id16.htm" TARGET="_top" TITLE="The Danger of Joint Tenancy"><B>Next Page</B></A></div> <div> <A HREF="id12.htm" TARGET="_top" TITLE=" Trust and Estate Planni"><B>Estate Planning Page</B></A></div> <bR> <div> <A HREF="index.htm" TARGET="_top" TITLE="Law Offices of Mathews Bergen Grier"><B>Home</B></A></div> <bR> <bR> <div> <A HREF="mailto:mbglaw@cts.com" TARGET="_top" TITLE="mailto:mbglaw@cts.com"><B><IMG SRC="01573ce0.jpg" border=0 width="115" height="206" ALT="E-mail MATHEWS BERGEN & GRIER" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></B></A></div> <bR> <bR> <bR> </td> <td valign="top" colspan=2 height=60 BGCOLOR="#FFFBF0" TEXT="#080000"> <div> <I>Advanced Estate Planning Trusts, etc.</I></div> <div> </div> </td> </tr><tr> <td valign="top" height=420 width="100%" colspan=2 BGCOLOR="#FFFBF0" TEXT="#080000"> <div> <B> <A NAME="the_a_b___tax_sensitive___trust_plan_"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B><B>The A-B (“Tax Sensitive”) Trust Plan </B></div> <bR> <div> A Simple Living Trust is used for Estates under $2,000,000.  (This amount and the amounts in the paragraphs, below, increase each year through the year 2009, as reflected in the <A HREF="id28_estate_and_gift_tax_exemption_schedule.htm" TARGET="_top" TITLE="Federal Estate Unified Rate Schedule">table</A>.) The purpose is to avoid probate. The whole idea of the so called “A-B Trust” (what we prefer to call the “Tax-Sensitive Trust”) is to preserve the federal estate tax personal exemption of both husband and wife. [Some lawyers have referred to the name of the trust as coming from the fact that the trust estate is divided into two separate trusts upon the death of one of the spouses. These two trusts are sometimes named 'A' and 'B.' The 'A' trust is for the surviving spouse. The 'B' trust is for the decedent spouse. We may remember this easily by thinking that the 'A' stands for the aboveground spouse, and the 'B' stands for the below-ground spouse.]</div> <bR> <div> If the total gross taxable value of the estate of both the husband and wife is under $2,000,000 there is no federal estate tax. When the total estate of both husband and wife is under $2,000,000, the <I>primary</I> purpose of the Revocable Living Trust is to avoid probate (or the necessity of a conservatorship on any extended disability). <U>A trust is still needed to do this, but we use the Non-tax Sensitive Living Trust rather than the Tax Sensitive Living Trust.</U> [Even a “Non-tax Sensitive Trust”, when properly drafted will contain more advanced, optional tax-saving provisions designed to protect the estate which is near the $2,000,000  value – or the estate which may inadvertently exceed this value because one of the spouses receives an inheritance or large insurance proceed, etc.] </div> <bR> <div> The taxable estate, which is the amount actually applied in computing the estate tax, is determined by reducing the gross estate by the following deductions:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b7011800000000.png" HEIGHT="19" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Funeral expenses, estate administration expenses, claims against the estate, and mortgages or other indebtedness securing property included in the gross estate;</div> <div> <IMG BORDER="0" SRC="Symb075c00b7011800000000.png" HEIGHT="19" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Certain state (not California, since there is none) and foreign death taxes;</div> <div> <IMG BORDER="0" SRC="Symb075c00b7011800000000.png" HEIGHT="19" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Casualty losses occurring during settlement of the estate;</div> <div> <IMG BORDER="0" SRC="Symb075c00b7011800000000.png" HEIGHT="19" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Transfers to charitable beneficiaries; and</div> <div> <IMG BORDER="0" SRC="Symb075c00b7011800000000.png" HEIGHT="19" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Transfers to the decedent's spouse.</div> <bR> <div> The A-B Trust is needed only if the total estate of the husband and wife together is more than $2,000,000. This is because the purpose of the A-B, or ‘tax-sensitive’ trust, is to avoid probate and preserve the personal exemption of each spouse. By using the "Marital Deduction" (generally, disallowed to a non-US citizen, except through a special trust vehicle called a Qualified Domestic Trust"), the effective exemption from Federal Estate Tax may be doubled! Here is how it works:</div> <bR> <div> During the life of both husband and wife, there is only one trust. But, upon the death of one of the spouses, the Trust Estate is divided into two trusts: Trust A and Trust B. The surviving spouse continues to have unlimited access to the income and the assets which are in Trust A.</div> <bR> <div> <B> <A NAME="the_tax_sensitive_trust_preserves_the"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B><B>The Tax Sensitive Trust Preserves the Maximum Exemption:</B> The surviving spouse will also receive all of the income from the assets in Trust B. However, there is only limited access to the actual assets in Trust B. The reason for this is that the IRS would consider the surviving spouse to own all of the assets in Trust B if the surviving spouse had unlimited access to those assets. If the surviving spouse was considered by the IRS to own the assets, then they would be included in the surviving spouse's estate and the federal estate tax personal exemption for the deceased spouse would be lost. By limiting the access to IRS guidelines (usually, to be used for health, education, maintenance and support), the exemption is preserved.</div> <bR> <div> The surviving spouse is still the manager of Trust B (i.e., can buy, sell, and trade the assets in Trust B) and receives all of the income from Trust B. This makes especially good sense in view of a fundamental financial planning principle: Never spend capital; spend only earnings from the capital.</div> <bR> <div> The reason you do not ever want to spend capital is that it is the capital which is producing the income. When you begin to spend the capital, there is that much less capital to produce income. This become a dangerous cycle which can only lead to the complete consumption of the capital. When the capital is consumed, there is nothing left to produce any income. Keeping this in mind, the A-B Trust does not restrict the surviving spouse more than good financial management would.</div> <bR> <div> Upon the death of the surviving spouse there would be no probate AND both federal estate tax personal exemptions would be preserved. This means that the husband and wife could pass up to $4,000,000 to their beneficiaries without federal estate tax. </div> <bR> <div> <B> <A NAME="summary"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B><B>SUMMARY:</B> A Simple Living Trust is used when the estate value is under $2,000,000 (or for single persons) to avoid probate and the horrors of a conservatorship. There are no federal estate taxes when the estate is less than the $2,000,000  limit. The A-B Trust is used when a husband and wife have an estate which is more than $2,000,000 to avoid probate and to preserve the personal exemption. A single person with assets in excess of $2,000,000 still needs a Revocable Living Trust; but, to avoid estate tax on the excess estate requires even more (and more complex) planning which is beyond the scope of this brochure. But, even for the single person, estate planning options abound, so don't despair!</div> <bR> <div> For more information on complex or large estate planning, <A HREF="id27.htm" TARGET="_top" TITLE="Complex Estate Planning (Large Estates)">click here</A>.</div> <bR> </td> </tr></table></body>