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Information about Revocable AB Living Trusts

Nolo's Encyclopedia of Everyday Law:
Answers to Your Most Frequently Asked Legal Questions

Beware of Annuities

Your place for information about Revocable AB Living Trusts. 

A trust is a fiduciary relationship in which one person or entity (the trustee) holds the title to property (the trust estate or trust property) for the benefit of another (the beneficiary).

A Living Trust is a legal entity, desribed by the trust document, where the trustee transfers his (or her) property into the trust with instructions on how to distribute or manage the trust after his death.  The main purposes of a living trust are to
eliminate probate fees and make sure the trustor's wishes for their property are carried out after their death or incapacitation.

In an AB Living Trust, married partners A and B transfer their property to an "AB Living Trust" then name each other as lfe beneficiaries and a third party (or parties) as their final beneficiary.   For example, Jack and Jill create an AB trust for their property and name their son Bob as the final beneficiary.
This allows Jack and Jill to pass on the full tax benefits to their son Bob when one dies before the other.  If Jill dies first, the trust is split into an "irrevocable tust" that contains Jill's share of the property and a "revocable trust" that contains Jack's share of the property.  The property in the "irevocable tust" legally belongs to the heirs (Bob in this case) but Jack is entitled to use the property and collect the income it generates for the rest of his life.  Jack can spend it all if he needs to but he can't remarry and pass this on to the kids of his new wife, which is what makes it irrevocable. 

The AB Living Trust insures the heirs of Jill are protected.  The added benefit is the assets in Jill's trust get the full benefit of the estate tax deduction.  When Jack dies, his assets will also get the full estate tax deduction.  If Jack and Jill had not put their assets into a trust, then the assets would be combined into Jack's estate after Jill's death and estate taxes would be due on the amount that exceeds a single estate tax deduction when Jack dies.

NOLO Press
(Do it Yourself)

A revocable living trust is a popular probate-avoidance device. The trust, created by managed for the trustor (also called grantor, donor, creator or settlor,) is by managed for the trustor (grantor, donor, creator or settlor). 

Probate is very expensive.  In California during 2010, the probate lawyer is entitled to 4% of the first $100,000 and 3% of the amount above that.  A "small" California estate of $250,000 could easily see a probate fee of $8,500 just to have a lawyer run some papers by a probate judge!

  • $100,000 x 4% + $150,000 x 3% = $4,000 + $4,500 = $8,500
(From Pg 238 of Nolo's Encyclopedia of Everyday Law) "You create the trust by preparing and signing a trust document.  Once the trust is created, you can hold property in the trust, without giving up any control over the trust property.  When you die, the trust property can be distributed directly to the beneficiaries you named in the trust document, without the blessing of the probate court.  Living trusts are discussed in more detail in the next set of questions (in the book.)"

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