By Joseph E. Balmer   |   January 28th, 2017

Estate Planning And The Revocable Living Trust

estate planning revocable living trustA perfect example of the benefits of reviewing your estate planning documents on, at least, an occasional level, can be seen with the marital revocable living trust, also sometimes known as an “A-B” trust.  Should you have such a document, and if it was prepared long ago and never updated, it is probably set up to accomplish exactly the OPPOSITE of what you want it to do.

There are many types of trusts.  There are many reasons to set up a trust.  With a married couple, the most common type of trust is a marital revocable living trust.  Historically, the main purpose of this type of trust was to avoid the probate process at death and to maximize estate tax savings.  Prior to the year 2000, all assets passing to a surviving spouse were exempt from estate taxes.  However, for assets not passing to a surviving spouse, the maximum estate tax exemption for Ohio estate taxes was $25,000 and the maximum estate tax exemption for federal taxes was $600,000.  It was not uncommon for those with a large estate to set up a marital revocable living trust to, in effect, double that maximum estate tax saving.

Such a trust would say that when the first spouse died, either the assets were split and half put into a credit shelter trust, or that the first $600,000 of assets went into the credit shelter trust and the balance into a surviving spouse’s trust.  Thus, the first spouse’s estate tax exemption was not wasted.  The only down side was that the credit shelter trust was treated as a separate entity, the surviving spouse (unlike with the surviving spouse’s trust) did not have unlimited access to the assets, the trust had to get a separate tax ID number and the trust had to file separate tax returns.  Since that time, the Ohio estate tax has disappeared completely.

The current exemption amount for federal estate taxes is roughly 5.4 million dollars.  For the vast majority of Ohioans, a trust is not necessary to avoid estate taxes.  Thus, in a marital trust, upon the death of the first spouse, we now want the surviving spouse’s trust funded first in most cases, not the credit shelter trust.  For example, a couple with 2 million dollars would not want the credit shelter funded at all upon death because it won’t save any estate taxes and now you’ve created a separate trust that has separate tax filing requirements and limited access by the surviving spouse.

Married Couples Should Set Up A Revocable Living Trust

For those with older trusts, the trust needs to be amended and basically flipped so that the marital trust is funded first upon death, other than what the surviving spouse disclaims into the credit shelter trust.  This provides maximum flexibility for the surviving spouse to make the right decision based upon what the prevailing law is at the time of the first spouse’s death.

If a couple has a trust that was drafted 20 years ago and never updated, it is probably not what they currently want or need.  Thus, although I do not think that you need to review your estate planning documents every other year, this is a great example of why, at least on an occasional basis, it is wise to review your estate planning documents to ensure that they are properly updated to comply with any changes in the law that may have occurred since the documents were executed.

Estate Planning Documents Should Be Reviewed Occasionally. Contact Us Today To Evaluate Your Needs

If you have questions about your revocable living trust or need legal help to properly evaluate your estate planning needs, please contact Holzfaster, Cecil, McKnight & Mues, LPA at (937) 293-2141 to schedule an appointment.

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Joseph E. BalmerAbout The Author: Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.

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