Trusts/Wills

Can an RLT Decrease Death Taxes?.

There exists a specific type of Revocable Living Trust (RLT), which can double the Federal Inheritance-Tax Exemption from $2 million to $4 million. It is designed for persons who have estates over $2 million (2008). Such a Trust can be used between a husband and wife.

With a simple husband/wife Trust or a simple Will, the spouses together can only leave $2 million dollars tax-free to their children or beneficiaries when the last spouse dies. The reason for this is that each one of us is legally allowed to pass on to the next generation $1,000,000 tax-free (2003). However, with a simple Will or Trust, the husband and wife often leave everything to one another first and then to the children or other beneficiaries on the date of death of the surviving spouse. When this happens, on the death of the first spouse to die, the surviving spouse receives all the property, but, since there is no mechanism in a simple Will or Trust for carving out and saving the decedent spouse’s $1 million exemption, his or her exemption MERGES with that of the surviving spouse so that on the date of death of the surviving spouse, only two $2 million exemption is available to the children or beneficiaries.

With a more complex Trust or Will, the decedent spouse’s $2 million exemption can be saved by inserting a special Decedent’s Trust into the Will or RLT, which identifies the decedent’s assets and saves the exemption. Should you choose to use a Will with a Trust, remember that the Will has to be probated first and then the Trust established. Needless to say, you will then have to pay the costs of probate first IN ADDITION TO PAYING FOR THE ESTABLISHMENT OF THE TESTAMENTARY TRUST.

For estates in excess of $4 million, there exists Grantor Retained Annuity Trust, Life-Insurance Trusts, and other Irrevocable Trusts designed to protect assets over the $4 million threshold.

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