Can I avoid estate taxes with a basic living trust?

Related Ads

Question:

Can I avoid federal estate tax by granting my wife and two adult children 50%/ 25%/ 25%, respectively, through a revocable living trust, rather than setting up an AB irrevocable trust?

Answer:

A basic revocable living trust does not reduce estate taxes by one red cent; its only purpose is to keep your property out of probate court after you die. Nor can you accomplish this trick by creatively juggling the percentages of your property each family member will receive.

On the other hand, an AB ("bypass") trust is designed to save on estate taxes by leaving some property to your children, but allowing your surviving wife to use it (and any income it produces) during her lifetime. That way, she does not legally own the property, and it won't be subject to estate tax at her death. 

However, married couples can transfer a ver large amount of assets--$10.5 million  in 2013 and $10.68 million in 2014--without owing federal gift or estate tax. This ability to combine each spouse's individual estate tax exemption is called "portability." For most couples, this eliminates the need to create an AB trust to avoid estate tax.

Read more about AB Trusts.

Create Your Estate Plan

WillMaker

Get Started with Quicken WillMaker Plus!

Everything you need to create a complete estate plan:

Write a legally valid will

Avoid probate with Nolo's Living Trust

Create a health care directive

Create a durable power of attorney

Prepare executor documents

Save on attorneys fees

Find an Estate Planning Lawyer

Need professional help?
Enter your zip code to find an estate planning lawyer. (e.g., 10110)
LA-NOLO4:DRU.1.6.5.20141029.29183