It is universally recognized that everyone dies
someday. Therefore, every individual is permitted to
plan for an orderly transfer of his or her assets to a
spouse, child(ren), and/or other loved ones. In
addition, depending upon your success during life, upon
death very substantial estate and inheritance taxes may
be levied upon your estate. It is within the context
of valid estate planning that ancillary lawsuit and
asset protection is available. No court will ever deny
a person the right to provided for their estate or to
take advantage of the estate tax allowances available
through trusts and other similar devices.
Estate Tax Fundamentals
Every dollar left in an estate is subject to a
unified estate and gift tax. However, to eliminate the
burden of taxation from "small" estates, congress has
given every individual two loopholes: first, any
individual may give any other person $10,000 per year
estate/gift tax free and second, each person is given a
lifetime estate/gift tax credit that is the rough
equivalent of a $600,000 estate. In addition, a
surviving spouse may inherit any amount from his/her
spouse without paying tax until the death of the
surviving spouse. To reduce the taxes ultimately
attributable to one's estate, two techniques are
usually used. Special types of trusts (the A-B and A-
b/C trusts) are created that permit half of the estate
to bypass the surviving spouse, thus creating a total
exemption of about $1,200,000 from estate/gift taxes.
For larger estates, the most effective technique is to
give, over time, a large portion of the value of the
estate to its intended heirs. A major objection to
this technique is that it gives up control of the
assets before the testator has given up the ghost.
However, using this technique, a married couple can
each give $10,000 per person per year, and using
conduits such as other relative, this amount may be
multiplied and the process accelerated.
Avoiding Probate
While you can't avoid dying you can avoid the high
costs of probate. There has never been a will written
that avoids probate. Probate costs include attorney
and accountancy fees. To avoid probate many improperly
use joint tenancy with the unwanted results described
above. To properly avoid these costs you may utilize a
fully funded revocable trust, also known as a "living
trust." The costs of probate for an estate that
exceeds the lifetime estate/gift tax credit may easily
exceed $10,000. Moreover, probate means delays in
transferring control of the assets and publicity
regarding the details of the decedent's affairs. Using
a living trust, you avoid these problems because you
have pre-positioned your assets to permit a seamless
transfer of control upon your death. While the Last
Will and Testament will be probated it will essentially
show no assets passing under its terms. For the twin
reasons described above, costs and control, the use of
the living trust is not only permissible but encouraged
by the law and the courts.
For married couples, forming two funded revocable
living trusts is a good way to protect assets if one
spouse is more vulnerable to claims than the other.
Statutes in several states now provide that each spouse
is entitled to hold his or her own property. For
federal income tax purposes, the trust creators are
treated as the trust property owners and no separate
tax return for the trust need be filed.
