Types of Trusts

Most people in these groups can benefit from a living trust. People in these groups tend to overuse joint tenancy to “plan” their estate. They tend to add a child (usually a child who lives closest to them) as a joint tenant with them on bank accounts or stock brokerage accounts. This is a huge mistake. No one with ever know if they intended for that asset to pass to that child or all of their children. It puts the joint-tenant-child in a terrible bind after the client’s death because he or she must decide to either keep the asset or gift it to the other children. Most likely, using joint tenancy will destroy the relationship between the children after the clients death. Using a simple living trust will avoid probate, avoid the joint tenancy trap, protect against disability and distribute the estate to the heirs properly.

2. One Living Trust for Married Couple with Assets UNDER $1 million.

Married couples with assets under the tax-free level for inheritance tax often use a Joint Living Trust. This is one living trust for the married couple. This trust will not save on estate taxes, but will avoid probate, protect and a disability court proceeding and maintain privacy. You do not want to use a trust like this if your assets are $1 million or more. Your assets might (and hopefully will) grow and your heirs will be forced to pay estate tax if the assets rise past $1 million. After the death of one spouse, there is very little administration work to do with these trusts and the surviving spouse keeps control of the trust. This trust will save the cost of a probate upon the second death, help to protect against a guardianship proceeding and maintain privacy. I like these trusts, and use them a lot, because they organize the couple’s assets and avoid probate. The couple’s children often say they are glad their parents had the foresight to set up the trust.

3. Two Living Trusts for Married Couple with Assets OVER $1 million

Several times each year I meet with a client whose spouse has just died and the client brings in the deceased’s simple will and list of their assets amounting to $1.5 million or so. The surviving spouse wants to prepare a living trust to avoid estate taxes. I have the unhappy task of telling them that because their spouse predeceased without signing a living trust, that it will not be possible to do so. They can set up a living trust to avoid probate, but not to save on estate taxes. The children will eventually owe $250,000.00 in federal estate tax. All of the tax was avoidable. The moral of this story is that a married couple should set up living trusts while they are married and living if they want to cut their estate tax.

In this case the married couple sets up two trusts, one for each spouse. These are called A/B Trusts or credit shelter trusts. They have four advantages: Avoiding probate; protecting against disability; privacy and $2 million can be passed to children without paying estate taxes. Few attorneys in Illinois, including me, will prepare one trust for a married couple with assets over $1 million. It is the more conservative route to have two trusts for the couple.

These trusts split into a family trust and marital trust after the death of a spouse. These trusts will avoid probate and save thousands in unnecessary estate tax. Under the current law, they are a “must” for couples with assets of over $1 million. (Note: The estate tax is scheduled to be abolished in the year 2010, but it reappears in 2011 with a tax-free amount of $1million, so I am advising clients to keep their A/B living trusts and those with assets over $1 million to establish a trust. Now is not the time to "cut and run" and go back to a simple will. It is unlikely that the estate tax will be fully repealed.)

Common Questions about Living Trusts

What’s Included with a Living Trust?

The following documents are included in the preparation of all estate plans:

Power of attorneys for health care-gives an agent authority to make health decisions for you.
Power of attorneys for property-gives an agent authority to control assets not in the living trust, (IRAs, cars, annuities).
Living will- an “advance directive” detailing your wishes if you have a terminal health condition.
Deed transferring house to the living trust-(out of state deeds and multiple deeds are an additional charge).
Trust binder with funding instructions and asset list.
Two original living trusts.
Pour-over will that leaves assets to living trust.
Funding assistance.
Estate planning newsletter.
Free annual review appointment.
Memorial Instruction letter.
On-line storage of health care documents for easy access.

What is needed for a first appointment?

Please download our Estate Planning Information Form and complete it. For a first appointment, your should bring a copy of the deed to your house or property and the completed information form or a list of your assets including life insurance, IRAs, 401k’s, mutual funds that are not in IRAs, brokerage accounts, bonds and all other assets that you own. A copy of any old will or trust is helpful and any pre-nuptial agreement.

If you have young children you should have in mind the person who will act as their guardian and as the back-up guardian.

We meet for about one hour and go over your family situation and assets and plan the trust. Then we meet about 1 week later to sign the trust. Trust funding is done at a later meeting.

How long does it take to get the Living Trust done?

Most trusts are completed within one week of the initial appointment.

Are there any good books on living trusts?

Yes, “Understanding Living Trusts” by Vickie and Jim Schumacher is a good living trust book. A lot of other books are not as balanced or as informative as this one. It is available at most libraries.

Do you prepare a “pull the plug” document?

Yes, we routinely prepare living wills, using the Illinois form. It is more important to sign a Power of Attorney for Health Care, but I usually have clients sign both a power of attorney and living will. It is important to give a copy of this to your agent. Please do not lock the power of attorney for health in the safe deposit box. There are many sources of information on the topic of advance directives.

Choice in Dying, http://www.choices.org/

Is there anything that does not go in my trust?

IRA’s are not transferred into the trust. They must remain in your own name. The trust is often made the beneficiary of the IRA.

Cars are left outside of the trust and will not cause a probate because the secretary of state allows the transfer of a car without a probate.

The day-to-day checking account is often left outside of the trust.

Does the Living trust have a number and is it registered anywhere?

The trust has no number. Its identification number for tax purposes is your social security number. The trust is not filed anywhere.

Where should I keep my trust?

The living trusts I do are given to clients in a binder. I suggest keeping the binder at home and putting the second original in a safe deposit box. You should let your back up trustee know where the trust is kept.

Note: This site is for informational purposes only. Please discuss your situation with the lawyer of your choice.