Types of Trusts

Simple “Couple” Trust

In a “simple” form of living trust, a married couple jointly shares control and benefits during their lifetime. At the death of the first spouse (the “deceased spouse”), the surviving spouse retains complete control over the trust and can even change the beneficiaries. At the surviving spouse’s death, the assets are distributed to the beneficiaries without probate, provided the assets are kept in the living trust during the surviving spouse’s lifetime. This is the easiest type of trust because no additional income tax return is required and because the surviving spouse can manage the trust as she sees fit. At the surviving spouse’s death, there will be estate taxes if the size of the surviving spouse’s estate (living trust, plus any other assets owned by the surviving spouse, including life insurance and retirement accounts) is greater than the amount excluded from estate taxes ( the “applicable exclusion amount”) in the year of the surviving spouse’s death. The applicable exclusion amount in 2011 is $5 million.


A/B Trust

An A/B Trust is administered identically to a “simple” living trust while both spouses are alive. Unlike the simple trust, when the deceased spouse dies, the A/B Trust divides the couple’s estate into two trusts. The B Trust (known as the “Bypass Trust”) is equal to the lesser of (a) the applicable exclusion amount or (b) the deceased spouse’s separate property plus half of the couple’s community property. The A Trust (known as the “Survivor’s Trust”) contains the balance of the couple’s assets.

The couple’s trust is split into two at the deceased spouse’s death so that each spouse’s applicable exclusion amount is used. This effectively doubles the amount that can pass to the couple’s heirs without estate tax. The surviving spouse may use the funds in the Survivor’s Trust without restrictions, and is often also the Trustee and sole beneficiary of the Bypass Trust during her lifetime. At the surviving spouse’s death, the Bypass Trust will pass to the couple’s heirs free of estate taxes. The Survivor’s Trust will only be subject to estate taxes if the surviving spouse’s assets are greater than the applicable exclusion amount in the year of the survivor’s death.


A/B/QTIP Trust

If a couple is extremely wealthy and establishes an A/B Trust, then at the death of the deceased spouse, the applicable exclusion amount will be held in the Bypass Trust, but the balance of the couple’s estate will be held exclusively by the surviving spouse in the Survivor’s Trust. In 2011, in an estate of $16 million, $5 million would be held in the Bypass Trust and $11 million in the Survivor’s Trust.

If the surviving spouse remarries, begins to support a new charity, or gets into an argument with one of the couple’s children, the surviving spouse can amend the entire Survivor’s Trust and completely change the beneficiaries. Only the amounts left in the Bypass Trust will be distributed to the people the deceased spouse intended to benefit.

The A/B/QTIP Trust provides the same tax benefits as an A/B Trust by placing the deceased spouse’s applicable exclusion amount into a separate Bypass Trust. However, the balance of the deceased spouse’s assets are deposited in a third trust (the “QTIP Trust”), rather than distributed to the Survivor’s Trust. That way, each spouse has control over half of their assets, and the benefits are not lopsided in favor of the heirs of the surviving spouse.

The surviving spouse is often the Trustee and must be the only beneficiary of the new QTIP Trust. If the couple has children from earlier marriages or do not agree on the distributions to their ultimate beneficiaries, the A/B/QTIP Trust is preferable to the simpler A/B Trust option. In the A/B/QTIP Trust, regardless of the size of the couple’s estate, the husband may leave his estate to one group of heirs after the death of the surviving spouse and the wife may leave her estate to other heirs. Both spouses can feel confident in their estate plan.


Pour Over Will

When you have a Trust you also have a very special kind of Will. It will determine who will care for your minor children, what you want your burial and funeral arrangements to be, and will protect you if you forget to put anything into the name of your Trust.


General Durable Power of Attorney

Your General Durable Power of Attorney is designed to allow someone, usually the same person who will be in charge of your trust, under the circumstance of your disability to sign your name


Durable power of attorney for health care

You have a Durable Power of Attorney for healthcare so that someone you choose, not someone chosen by a Judge, can make medical decisions for you if you can not make those decisions for yourself.


Tax Benefits and Avoiding the Death Tax

Having a properly executed will and trust can also drastically decrease the amount of money your family will spend in taxes upon your death. You can decrease or even reduce the tax burden to zero with the right documentation.