If you are a resident of Orange County, California with an old A/B trust, it is important to review your estate plan to ensure that it still meets your needs. A/B trusts were once a popular estate planning tool for married couples, but they are no longer as necessary due to changes in the federal estate tax laws around 2011.
An A/B trust is a type of living trust that is divided into two separate trusts upon the death of one spouse. The first trust, known as the "A" trust, is designed to benefit the surviving spouse. The second trust, known as the "B" trust, is designed to benefit the couple's children or other heirs.
One of the main benefits of an A/B trust is that it can help to reduce estate taxes. Under current federal law, each individual has a lifetime estate tax exemption of $12.9 million. This means that you can transfer up to $12.9 million in assets to your heirs without having to pay estate taxes.
If your estate is valued at more than $12.9 million, an A/B trust can help to reduce the amount of estate taxes that your heirs will have to pay. When one spouse dies, the assets in the A/B trust are split into two separate trusts. The assets in the A/B trust are valued at the date of the first spouse's death. This means that the assets in the B trust will not be subject to estate taxes when the second spouse dies.
However, there are also a number of pitfalls associated with A/B trusts. One of the biggest pitfalls is that they can be complex and expensive to set up and maintain. Additionally, A/B trusts may not be necessary for all couples. If your estate is valued at less than $12.9 million, you may be able to achieve the same results with a simpler estate planning tool, such as a revocable living trust.
Another pitfall of A/B trusts is that they can be inflexible. Once an A/B trust is established, it can be difficult to make changes to it. This can be a problem if your circumstances change, such as if you get divorced or remarried.
Finally, A/B trusts can create conflict between the surviving spouse and the children or other heirs. If the surviving spouse wants to access the assets in the B trust, they may have to go through a court process. This can be expensive and time-consuming.
Reasons to update your trust and get out of the A/B trust
There are a number of reasons why you may want to update your trust and get out of the A/B trust. Here are a few of the most common reasons:
*Changes in the federal estate tax laws. As mentioned above, the federal estate tax exemption is now $12.9 million. This means that most couples no longer need an A/B trust to reduce estate taxes.
Complexity and cost. A/B trusts can be complex and expensive to set up and maintain. If you have a simpler estate plan, such as a revocable living trust, you may be able to save money and avoid unnecessary complications.
Flexibility. A/B trusts can be inflexible. Once an A/B trust is established, it can be difficult to make changes to it. If your circumstances change, you may want to consider a more flexible estate planning tool.
Conflict. A/B trusts can create conflict between the surviving spouse and the children or other heirs. If you want to avoid this conflict, you may want to consider a different type of estate plan.
If you are a resident of Orange County, California with an old A/B trust, it is important to review your estate plan with an experienced estate planning attorney.** An attorney can help you to determine whether an A/B trust is still necessary for your needs and can help you to develop a more flexible and cost-effective estate plan.
Local cities in Orange County, California that we serve and we are now statewide.
* Aliso Viejo
* Anaheim
* Brea
* Buena Park
* Costa Mesa
* Cypress
* Dana Point
* Fountain Valley
* Fullerton
* Garden Grove
* Huntington Beach
* Irvine
* La Habra
* La Palma
* Laguna Beach
* Laguna Hills
* Laguna Niguel
* Lake Forest
* Los Alamitos
* Mission Viejo
* Newport Beach
* Orange
* Placentia
* Rancho Santa Margarita
* San Clemente
* San Juan Capistrano
* Santa Ana
* Seal Beach
* Stanton
* Tustin
* Villa Park
* Westminster
A living trust is a type of trust that is created during your lifetime. You can transfer assets to your living trust and then You can transfer assets to your living trust and then retain control over them during your lifetime. You can also name a successor trustee to manage the trust after you die.
One of the main benefits of a living trust is that it can avoid probate. Probate is the court process of distributing a deceased person's assets. Probate can be expensive and time-consuming. By creating a living trust, you can avoid probate and ensure that your assets are distributed to your heirs quickly and efficiently.
Another benefit of a living trust is that it can provide flexibility for your heirs. For example, you can use a living trust to provide for a minor child until they reach a certain age. You can also use a living trust to create a spendthrift trust to protect your assets from your heirs' creditors.
If you are a resident of Orange County, California with an old A/B trust, you may want to consider converting your A/B trust to a regular living trust. This can help to simplify your estate plan and avoid the pitfalls associated with A/B trusts.
Here are some of the benefits of converting your A/B trust to a regular living trust which was probably the reasons you set one up to begin with:
- Simplicity. Living trusts are generally simpler and easier to manage than A/B trusts.
- Flexibility. Living trusts offer more flexibility than A/B trusts. You can make changes to your living trust at any time during your lifetime.
- Cost. Living trusts are generally less expensive to set up and maintain than A/B trusts.
- Conflict avoidance. Living trust can help to avoid conflict between the surviving spouse and the children or other heirs.
If you are considering converting your A/B trust to a living trust, it is important to consult with an experienced estate planning attorney. An attorney can help you to determine the best course of action for your specific needs.
Many people do not even realize that mandatory provisions to split the estate into two trusts when one spouse dies is in their trust right now like a ticking time-bomb and once a spouse departs it is too late as a half of the trust now becomes irrevocable and requires going into court for any changes.
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