AB California Living Trust: What Type Should You Choose
You have two options when choosing a type of California living trust. You can establish a single living trust, which has been described thus far, and does not include special provisions. A single living trust is held by a single trustee and adheres to all principles and guidelines previously discussed. Your second option is an AB living trust.
Attaching AB provisions to your California living trust can provide tax incentives for couples with substantial assets. Such strategies are used for reducing or completely avoiding estate taxes.
AB California Living Trust Overview
When a couple establishes a California living trust with AB provisions, they create a living trust with two components. For example, a wife may own the A trust within an AB living trust, and her husband may own the B trust. If the wife dies, her assets pass to the husband without being immediately taxed or undergoing probate. The husband can then decide, with the assistance of a San Diego living trust attorney, which assets will become his property, and which will enter the now irrevocable A trust, of which the husband still has control.
Reducing or completely avoiding estate tax is the main incentive for couples to attach AB provisions to their living trust. In determining whether an AB living trust is right for you, you must understand the Estate Tax Credit system. According to this system, which was established by Congress, each individual property owner has something called Unified Credit, which means $5.12 million worth of assets is protected from estate tax. If you have a single San Diego living trust, you can protect no more than $5.12 million from estate taxes. However, if you establish an AB California living trust, both you and your spouse can utilize your Unified Credit, shielding $10.24 million from estate tax. Your San Diego living trust lawyer can explain how taxes are likely to effect your estate, given your unique situation.
Due to the increasing rate of estate tax, which can be as high as 35 percent, establishing an AB living trust can provide significant savings for couples with estates valued at over $10.24 million. For this reason, San Diego AB living trusts are especially popular amongst couples with substantial assets.
Life partners, in the case of unmarried couples, can also take advantage of the San Diego AB living trust option. Talk to your San Diego living trust lawyer to determine whether adding AB provisions to your trust would be advantageous in planning your estate.
In order to add AB provisions to a California living trust, both members of a couple must create their own independent trust (one creating the A trust, the other the B trust) within a joint San Diego living trust. When one spouse or partner dies, the other maintains ownership of his or her individual trust within the AB living trust, which can still be revoked. The living spouse also gains control over the trust of the deceased spouse, which is no longer revokable, but does not gain ownership of this trust. In this way, establishing a living trust with AB provisions differs from leaving all of your assets to your spouse or partner as direct inheritance.
At the death of the first spouse, the surviving spouse is advised to hire an accountant who can work with your San Diego living trust attorney to divide your property between beneficiaries and the A and B living trusts. Your California living trust lawyer will understand state guidelines that may impose additional restrictions on the way you can divide your property, or may provide greater flexibility. If you wish to avoid tax repercussions, you are advised to obtain expert guidance when dividing assets between the two components of your San Diego living trust.
There are several formalities that you will most likely need to complete when establishing a California AB living trust. First, you must determine who will take over the trust when an initial trustee, or one of the spouses who began the trust, dies. If the surviving spouse is suffering from cognitive problems as a result of illness, injury, or old age, someone else may need to take over the trust. The surviving spouse may also simply not want to manage the trust. Your San Diego living trust lawyer can help you establish a successor trustee, often an adult child, as the person who will legally oversee the AB trust after the death of one parent. Ensure that the person you select as a successor trustee is trustworthy, capable, and willing to complete all duties required to oversee your living trust. Work with your San Diego living trust lawyer to establish parameters regarding how your successor trustee is permitted to run the trust, regarding what investments can be made, etc.
Once you have established a California living trust with AB provisions, one spouse has died, and property has been divided into A and B trusts, you must file annual tax returns for each trust. You must also keep a separate set of accounting books for each trust. Your San Diego living trust lawyer can advise you during these processes to eliminate potential confusion.
Keep in mind that the bigger your estate, the more important it is for you to work with an experienced San Diego living trust lawyer, since you are likely to be subject to higher estate taxes. Also, the greater your estate, the more complications and potential taxes you may encounter. Working with a California living trust lawyer is especially important if you plan to set up an AB living trust, especially if you want to incorporate special parameters, such as controlling how the surviving spouse uses assets from his or her partner’s trust, or leaving money for minors or disabled beneficiaries who will require supervision in managing assets.
Managing a California AB Living Trust
After the death of one spouse, assets are divided into part A and part B of a San Diego living trust with AB provisions, and a life beneficiary is named to manage both trusts. Normally, this person is the surviving spouse. With the help of your California living trust lawyer, you can dictate how much control the life beneficiary has over the assets and trust of the decreased spouse. Generally, the spouse maintains the following control:
The ability to spend money from the trust on general living costs, as well as medical fees and education.
The ability to maintain property denoted in the California living trust, and to buy, sell, and transfer ownership of this property as the life beneficiary sees fit.
The right to keep income generated by the living trust, and to use it in any way the life beneficiary sees fit.
If you do not want your spouse to maintain these controls over your trust should you be the first to die, you can work with your San Diego living trust lawyer to establish special parameters that can be legally enforced after your death.