The following information provides the basics of some common trusts and the estate planning
issues they can help address.
A-B Marital/Credit Shelter Trust
An “A” Trust or Marital Trust is often established in conjunction with a “B” or Credit Shelter Trust. An A Trust qualifies for the unlimited marital deduction. The surviving spouse must receive income from the trust and may even receive all or a portion of the principal of the trust at the trustee’s discretion. This trust will be included in the surviving spouse’s estate.
For married couples, establishing a B trust is the key to avoiding the loss of a first spouse’s applicable exclusion amount. An amount equal to the current applicable exclusion is applied to the B Trust when the first spouse dies. Any accumulation within the trust also remains outside the surviving spouse’s estate.
Revocable Living Trust
This trust contains instructions for the management of an individual’s assets during their life and in the event of disability. It also contains instructions for the disposition of the individual’s assets after death. When properly planned, a living trust can reduce or eliminate the time and possible expense of probate and retain privacy for the family. The probate process is public, while transfers through a living trust can remain private. Only assets titled to the trust can remain private. Your Frundt and Johnson attorney can advise you on what works best for your situation.
Irrevocable Life Insurance Trust (ILIT)
If you are planning to use life insurance as a means of funding your estate settlement costs, and ILIT can remove the death benefit proceeds from your estate for federal estate tax purposes.
Naming a Trustee
Naming a trustee of any trust is an important component. Based on the type of trust and the goals you want to achieve, you may or may not be advised to name yourself, your spouse, or your children as trustees.
Trustee responsibilities include:
- Implementing the trust’s terms
- Distributing or reinvesting any returns
- Providing accounting services for the trust, including: Tracking principal and income, Filing tax
returns, Tracking cost biases
- Arranging payment of any of the trust’s debt obligations
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