In a past article I relayed the plight of the widow who stated:
"I didn't realize what an A-B Revocable Living Trust meant and that it had to be divided between the survivor and the deceased spouse and that I am limited as to what I can use from his share."
She told me that she only learned of this after her husband passed away. This is too late for many (there is a way to collapse an A-B Revocable Living Trust, which we'll talk about in another article).
First, what is an A-B Revocable Living Trust? I spend a great deal of time going over this in my free Multi-Media Course, available at http://www.livingtrustsecrets.com. Basically it is the splitting of a husband and wife's estate into two shares, his share and her share. The reason is to capture, or use, the estate tax unified credit amount that each spouse receives on death.
Let's explain. Since we know Uncle Sam likes to receive his inheritance too, whenever there is a death, we always need to ask "is there a tax?"
When we talk about taxes on death, we are talking about the federal estate tax (your state may also have a tax, sometimes called an estate tax or an inheritance tax. The difference is who is liable for payment of the tax? the estate or the inheritor? But let's not get side-tracked on the state tax. Let's stick with talking about the federal estate tax).
So let's say you have a "simple will." In a simple will, you will usually say "when I die, leave everything to my spouse." Very Simple.
Now, is there a federal estate tax? First, realize that the passing of property on death is a privilege and not a right. Therefore, it is taxable event. Even though it is a taxable event, however, the tax code tells us that everything that is left to our spouse is tax-free under what is called the "marital deduction." So, in our simple will example, there would be no estate tax since everything you leave to your spouse is tax free.
Uncle Sam is patient. He is willing to wait until the second spouse to die passes away. Now, he gets to collect his tax on the total of both shares: the husband's share and the wife's share.
What happened with the "simple will" is that you have wasted the federal estate tax unified credit amount (currently $1.5 million) that can be left tax free to anyone.
So, what the A-B Revocable Living Trust is designed to do is to capture and preserve the federal estate tax unified credit amount available when the first spouse dies. It does this by creating what is often called the "credit shelter" trust.
The "credit shelter" trust (the "B" trust in an "A-B" Trust) is an irrevocable trust that springs into being out of your Revocable Living Trust when the first spouse dies. This trust is designed to be managed by the surviving spouse for the benefit of the surviving spouse, without giving the survivor any "taxable incidents of ownership."
What this accomplishes is that upon the death of the second spouse to die, the assets that had been placed into the "credit shelter" trust are not considered to be owned by the second spouse to die. Therefore, they are not included in or taxed as part of the second spouse to die's estate.
This can often save hundreds of thousands of dollars, since the federal estate tax rate kicks in at 37% and goes up from there.
Good luck and until next time,
Phil Craig
P.S. Feel free to forward this on to any friends.
Phil Craig is a licensed attorney and entreprenuer. He started practicing law at age 25 in 1979. He does not take on any more clients, but is advisor to some of the biggest names in the internet world. He shares his knowledge gained over the last 25 years at his Living Trust Secrets newsletter site: click here=========>http://www.livingtrustsecrets.com
** Attn Ezine editors / Site owners ** Feel free to reprint this article in its entirety in your ezine or on your site so long as you leave all links in place, do not modify the content and include our resource box as listed above.
If you do use the material please send us a note so we can take a look. Thanks.
non-toxic cleaning company Winnetka ..OverviewIn the Pre-Budget Report of December 2003 the Chancellor Gordon... Read More
In a past article I relayed the plight of the... Read More
Small Businesses Filing Amended Federal Tax Returns to... Read More
As everyone in the U.S. knows, we have just passed... Read More
It's that time again, the April 15 tax deadline is... Read More
Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More
Q: I was contacted by the city tax collector to... Read More
With gas prices at an all time high before Hurricane... Read More
One can never underestimate the enthusiasm that politicians have for... Read More
In the rush to get tax returns prepared and filed... Read More
Most people trying to make a crust online (or offline... Read More
Many Americans believe that an IRS debt is a debt... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More
Own residential rental properties? This article discusses how income from... Read More
Do you realize that some tax forms ask you to... Read More
Someone once said, 'the best way to calculate your taxes... Read More
Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing... Read More
Many small businesses complain when confronted with the expense of... Read More
The federal tax code is complex. This complexity generally arises... Read More
"What we've got here is a failure to communicate." ... Read More
As your business grows, you are going to need help.... Read More
Donating your used car to charity is a win-win situation;... Read More
Over 50% of marriages end in divorce in the United... Read More
Hit a big one? With more and more gambling establishments,... Read More
experienced cleaning professionals Glencoe ..Reservists called to active duty and enlistees in the armed... Read More
Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More
Most people trying to make a crust online (or offline... Read More
Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More
If you have employees, you are responsible for paying a... Read More
If you have recently started an Internet or home business,... Read More
Tilting the Tax Laws in Your Favor.In order to accelerate... Read More
Many taxpayers are confused about how long they should keep... Read More
As a small business owner, it's wise to familiarize yourself... Read More
Someone once remarked, "Next to being shot at and missed,... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
QUESTION: I have been contacted by my local city... Read More
In the largest criminal tax case ever filed, KMPG has... Read More
If you paid someone to care for a child so... Read More
Have you been thinking about incorporating your small business or... Read More
"Deducting Meals and Entertainment"O.K. You've been working really hard on... Read More
With the massive losses caused by Katrina, the economy of... Read More
As a small business owner or self-employed person, one of... Read More
Yes, the tax season is upon with the first filing... Read More
Your days as an entrepreneur and businessperson are consumed with... Read More
It's that time again, the April 15 tax deadline is... Read More
Small Businesses Filing Amended Federal Tax Returns to... Read More
Haven't done your taxes yet? No problem. Now there is... Read More
Employers often ask employees to designate the amount of tax... Read More
Background issues of access to recordsTo assess the records at... Read More
Tax |