Estate Planning FAQs

1. What is Estate Planning?
2. What Documents Are Part of an estate?
3. What Are Some Estate Planning Tools and Techniques? (part 1) (part 2)
4. What About A Revocable Trust?
5. I’ve Heard of an AB Trust, What Does That Do?
6. What are my Options if I Want an Irrevocable Trust?
7. What About Estate Taxes?
8. What About Other Fees and Costs?
9. My estate is Really Pretty Small Must I Still go Through Formal Probate?
10. What Does Estate Planning Cost?
Estate Planning Package

4. What About A Revocable Trust?

An inter vivos revocable living trust serves as a testamentary instrument to transfer property at death and as a management tool during the settlor's life. In most instances, the settlor is the primary beneficiary of the trust and serves as the initial trustee. The trust document will also provide for appointment of a successor trustee or trustees who can assume responsibility if the initial trustee resigns, dies, or becomes incapacitated. Because the trust document provides for succession of authority by its own terms, court intervention generally is not required.

The lack of court oversight may make it relatively easy for a successor trustee to abuse his or her powers by self-dealing or converting trust assets to his or her own use or benefit. Even the most well-intentioned trustee may inadvertently create a legal mess by acting, or failing to act. It is imperative that a trustee clearly understand his or her fiduciary duties, among them the duty to avoid commingling trust and personal assets, to keep detailed records, and to act in the interests not only of the life beneficiary but of the remainder beneficiaries as well.

A frequent problem arises when the trust is prepared and executed but not funded because the settlor either has not received proper advice or fails to understand that assets must be re-titled in the name of the trust. An empty trust provides none of the benefits contemplated, and may even result in an otherwise unnecessary probate proceeding.

5. I’ve Heard of an AB Trust, What Does That Do?

An AB trust allows couples to reduce or avoid estate taxes. Each spouse puts his or her property in an AB trust, and when the first spouse dies, his or her half of the property goes to the beneficiaries named in the trust -- commonly, the grown children of the couple -- with the condition that the surviving spouse has the right to utilize the income as well as use the trust to provide for their health, maintain their standard of living, pay for education, and provide various other benefits.

When the surviving spouse dies, the property passes to the trust beneficiaries. It is not considered part of the second spouse's estate for estate tax purposes. This allows the trust to use both spouses lifetime exemption to "shelter" a large amount of assets.

This AB trust, allows a married couple to pass a significant amount of property to their children or other beneficiaries after both spouses die, while at the same time ensuring the surviving spouse is financially comfortable during his or her lifetime.

When setting up an AB trust, each spouse names final beneficiaries who will receive the trust's property when the surviving spouse dies. Spouses often name the same people -- their children -- as final beneficiaries, but they can name anyone they want.

Using this kind of trust keeps the second spouse's taxable estate half the size it would be if the property were left directly to the spouse. This type of trust is also known as a bypass or credit shelter trust.