Choosing A Living Trust


The desire to ensure that an heir is provided for materially is the most common reason for creating a Living Trust. In the case of minors, a trust allows a parent to provide for a child without giving the child control over the property. The parent can also mandate how the property is to be distributed and for what purposes.

A trust is also a useful tool for taking care of heirs who have mental impairments or lack investment experience. The trust document can establish that all money is controlled by a trustee with sound investment experience and judgment. Likewise, a trust preserves the integrity of funds when the recipient has a history of extravagance. It can protect the property from an heir’s spendthrift nature as well as from his or her creditors.

This is also true of persons who may feel pressure from friends, con artists, financial advisors and others who want a slice of the pie. A Living Trust can make it extremely difficult for a recipient to direct property to one of these uses.

A “spendthrift” provision in a Living Trust is often used to further preserve the integrity of assets. It prohibits the heir from transferring his or her interest and also bars creditors from reaching into the trust. Living Trusts are relatively easy to update, modify or revoke in most cases. A will, however, is difficult to change, and establishing one requires many formalities.


Many Americans think that the benefit of a Living Trust is the avoidance of probate. Because property in the trust is not considered part of an estate, it does not have to undergo this sometimes lengthy process. The property is instead administered and distributed by the trustee, according to the specific terms of the trust.

Probate expenses can be significant. Costs vary according to the size of the estate and what it includes. It also varies by state. Some have very expensive and onerous procedures, while others offer a streamlined version of probate.

Avoiding probate means not only avoiding hassle and expense, but also saving time. Probate can extend the amount of time before an heir receives an inheritance by months, years – even longer if the will is contested. Not only can this create hardship among the heirs, but the property in the estate may also suffer. Many assets must be carefully managed to preserve and enhance their value. Losses may easily occur during this interim period.

There is an emotional price to pay, too. Survivors may be continually reminded of the loss of a loved one as the process drags on.

Probate can also lead to loss of privacy. Wills and probate are public matters, whereas a Living Trust keeps the estate private. Typical probate documents list all assets, appraised value and names of new owners. This information becomes available to marketers, media, creditors and con artists.

If the estate includes real property in more than one state, the process becomes even more complex. An ancillary administration is required to probate out-of-state real estate. As you can imagine, “double probate” is even more time-consuming, expensive and emotionally taxing than a single probate process.

Probate also allows the original owner’s creditors a shot at the property. Although there is still some controversy about the extent of its creditor-shielding benefits, a Living Trust generally makes it much more difficult for an estate to be consumed by creditor claims.


Living Trusts are harder to contest than wills. Part of the reason is that trusts usually involve ongoing contacts with bank officials, trustees and others who can later provide solid evidence of the owner’s intentions and mental state. A Living Trust that has been in place a long period of time is less likely to be challenged as having been subjected to undue influence or fraud. And because it is a very private document, the terms of the trust might not even be revealed to family members, allowing less opportunity for challenges to its provisions.

A Living Trust also avoids the painful ordeal of “living probate.” That’s what happens when a person is no longer competent to manage property, whether because of illness or other causes. Without a Living Trust, a judge must examine whether you are in fact incompetent, and all of the embarrassing details of your incompetence will be dragged out in court. The judge will appoint a guardian – perhaps someone you would not want to manage your affairs. Guardians act under court supervision and often must submit detailed reports, meaning that the process can become quite expensive.

With a Living Trust, your designated trustee takes over management of trust property and must manage it according to your explicit instructions in the trust document. The terms typically set standards for determining whether you are incompetent or not. For example, you may specify that your doctor must declare you can no longer manage your financial and business affairs.


Living Trusts also provide a way for beneficiaries to receive the guidance of professional asset managers. A bank may be named as a Successor Trustee or Co-Trustee, allowing an experienced trust department to manage the assets.

Of course, eliminating or reducing taxes is one of the primary goals of estate planning. Trusts allow for a highly flexible approach to taxes. Income taxes can be slashed by transferring income-producing assets to a recipient in a lower tax bracket. Through the use of trusts, the state and federal government’s estate tax exclusions can be doubled, without the filing of an estate tax return unless the decedent had more than the current estate tax exclusion. Note, the estate tax exclusion for the state may be lower than the federal exclusion.


Building Lasting Relationships


We have served as trust and estates counsel to four generations of a family.  Our client needed a firm that could assist them in their long-term needs and protect their assets over generations. For over 35 years, we have been trusted partners, providing not only legal services, but acting as estate administrator and trustee.


Our attorneys advise on both day-to-day issues and long-term succession planning. We guide the family through changes in the tax laws, utilizing exemptions and developing strategies to minimize tax exposure. To maximize the overall succession of wealth for each generation, our legacy planning includes establishing qualified personal residence, generation skipping and insurance trusts. We implement best practices for asset protection and advise on tax considerations for business formation.

Making the Complex Simple


Our client inherited a sizable amount from a relative in France, and at the advice of a foreign consultant invested a portion in a Swiss life insurance product. While traveling in Switzerland, our client was taken aside and advised of the possibility of criminal charges for improper reporting.


When our client returned the U.S., we counseled her on the best financial disclosure options and facilitated proper reporting through the Internal Revenue Service (IRS) Offshore Voluntary Disclosure Program. When the IRS announced new streamlined domestic offshore procedures, we successfully transitioned our client into the new program. We reduced the penalty to a small percentage of the highest unreported balance.

Estate Planning: Frequently Asked Questions


Most of us spend a considerable amount of time and energy in our lives accumulating wealth. As we do this, there also comes a time to preserve wealth both for our enjoyment and for future generations. A solid, effective estate plan ensures that your heard-earned wealth will pass intact to those you intend to be your beneficiaries.


YES. But your family may not like it. The government’s estate plan is called “intestate probate” and guarantees government interference in the disposition of your estate. Documents must be filed and approval must be received from a court to pay your bills, pay your spouse an allowance, and account for your property and it all takes place in the public’s view. If you fail to plan your estate, you lose the opportunity to protect your family from an impersonal, complex governmental process that is a burden at best and can be a nightmare.

Then there is the matter of the federal government’s death taxes. There is much you can do in planning your estate that will reduce and even eliminate death taxes, but you don’t suppose the government’s estate plan is designed to save your estate from taxes, do you? While some estate planners favor wills and others prefer a Living Trust as the Estate Plan of Choice, all estate planners agree that dying without an estate plan should be avoided at all costs.


A will is a legal document that describes how you want your assets distributed at death. The actual distribution, however, is controlled by a legal process called probate, which is Latin for “prove the will.” Upon your death, the will becomes a public document available for inspection by all comers. And, once your will enters the probate process, it’s no longer controlled by your family, but by the court and probate attorneys. Probate can be cumbersome, time-consuming, expensive, and an emotional trauma in a family’s time of grief and vulnerability. Con artists and others with less than pure financial motives have been known to use their knowledge about the contents of a will to prey on survivors.

A Living Trust avoids probate because your property is owned by the trust, so technically there’s nothing for the probate courts to administer. Whomever you name as your “Successor Trustee” gains control of your assets and distributes them exactly according to your instructions.

There is one other crucial difference. A will doesn’t take effect until you die, and is therefore no help to you with lifetime planning, an increasingly important consideration now that Americans are living longer. A Living Trust can help you preserve and increase your estate while you’re alive, and offers protection should you become mentally disabled. Read on.


Unfortunately, you would be subject to “living probate,” also known as a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. These “court-appointed agents” must file a strict accounting of your finances with the court. The process is often expensive, time-consuming and humiliating.


YES. In fact, most Living Trusts have the people who created them acting as their own trustees. If you are married, you and your spouse can act as Co-Trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your hand-picked Successor Trustee assumes control over your affairs, not the court’s appointee.


NO. The purpose of creating a Living Trust is to avoid living probate, death probate, and reduce or even eliminate federal estate taxes. It’s not a vehicle for reducing income taxes. In fact, if you’re the trustee of your Living Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created


YES. In fact, all real estate should be transferred into your Living Trust. Otherwise, upon your death, depending upon how you hold title, there will be a death probate in every state in which you hold real property. When your real property is owned by your Living Trust, there is no probate anywhere.


NO. The Living Trust has been authorized by the law for centuries. The government really has no interest in making you or your family go through a probate that will only further clog up the legal system. A Living Trust avoids probate so that your estate is settled exactly according to your wishes.


NO. A Living Trust can help anyone protect his or her family from unnecessary probate fees, attorney’s fees, court costs and federal estate taxes. In fact, if your estate is greater than $100,000, you’ll find a Living Trust offers substantial benefits for you and your family.


NO. You should choose an attorney whose practice is focused on estate planning. Members of the American Academy of Estate Planning Attorneys receive 36 hours of extensive continuing legal education annually on the latest changes in any law affecting estate planning, allowing them to provide you with the highest quality estate planning service anywhere.


  • Revocable Living Trust: Device used to avoid probate and provide management of your property, during life and after death
  • Property Power of Attorney: Instrument used to allow an agent you name to manage your property if you become incapacitated
  • Health Care Power of Attorney: Instrument used to allow a person you name to make health care decisions for you should you become incapacitated
  • Annual Gift Tax Exclusion: Technique to allow gifts each year without the imposition of estate or gift taxes. Check out our website for current figure
  • Irrevocable Life Insurance Trust: A trust used to prevent estate taxes on insurance proceeds received at the death of an insured
  • Family Limited Partnership: An entity used to: 1) provide asset protection for partnership property from the creditors of a partner; 2) provide protection for limited partners from creditors; 3) enable gifts to children but parents maintain management control; and 4) reduce transfer tax value of property
  • Children’s or Grandchildren’s Irrevocable Education Trust: A trust used by parents and grandparents for a child’s or grandchild’s education
  • Charitable Remainder Interest Trust: A trust whereby donors transfer property to a Charitable Trust and retain an income stream from the property transferred; the donor receives a charitable contribution income tax deduction, and avoids capital gains tax on transferred property
  • Fractional Interest Gift: Allows a donor to transfer partial interests in real property to donees and obtain fractional interest discounts for estate and gift tax purposes
  • Private Foundation: An entity used by higher wealth families to receive any otherwise taxable property so as to eliminate estate taxes on the death of a surviving spouse

© American Academy of Estate Planning Attorneys, Inc.

Estate Planning Basics for Families with Young Children

It’s nearly incomprehensible for a parent to consider, but part of loving and protecting your family is providing for the possibility of events unfolding differently than you’ve envisioned. The question of what will happen to your children without you or your partner will be answered one way or another. The amount of control you have over how that question is answered is entirely up to you. Without sufficient planning, your family’s future will be decided by the judicial system. Setting up an estate plan makes sense for any individual, no matter their financial or personal situation, but for families with young children, drafting an estate plan is absolutely essential.


If you pass away without an estate plan, you die intestate, which means that your estate will be distributed by predetermined state guidelines, and the courts get to decide who is awarded custody of your children and who controls the inheritance you’ve left for them.

Custody of Your Children

Without even a basic Will, you won’t have any say about who assumes custody of your children. A judge who has no knowledge of your wishes will appoint a guardian for them in family court. Initially, the judge will appoint a temporary guardian, with a full hearing being held possibly months later to award final custody and guardianship to the person the court deems to be the most capable. Potentially, your family and friends could end up battling over custody arrangements, causing emotional rifts among your loved ones for years to come. Or, worse yet, your children could temporarily or permanently be placed in foster care.

If you had nominated a guardian in a Will or the Pour-Over Will of your Living Trust, the judge would have taken into consideration the person you named and most likely awarded custody to that individual, unless that person were deemed unfit to care and support your children.

Control of Your Children’s Inheritance

To make matters even more complicated, there may be a separate court hearing to determine who will be in charge of the inheritance that you leave for your underage children. The financial guardian, or guardian of the estate, may or may not be the same person who was awarded custody.

The financial guardian will be in control of your children’s inheritance until they come of age. At which point they will receive their full inheritance outright. Due to the young adult’s financial inexperience and immaturity, their inheritance may be squandered.

Probate of Your Estate

Furthermore, without a Will or a Revocable Living Trust, any assets including life insurance proceeds will be divided according to predetermined state guidelines for intestacy in probate court. These guidelines are based on a one-size-fits-all approach to division of wealth. This formula, written by state legislators, does not take into account non-traditional families, such as those with children who are not yet adopted or unmarried partners, and may instead distribute the estate only to legally-recognized relatives. Additionally, each state has different rules, so if you own physical property in more than one state, it can become excessively difficult and expensive to sort out. Even without this complication, probate may be an extremely costly, time-consuming, and potentially distressing process in many states and can be avoided easily with a proper estate plan.

Moreover, having your estate settled in probate court makes all of your finances and personal information a matter of public record. Not only is this embarrassing and invasive, but it can also be dangerous for your surviving family members, as it makes them easy targets for predators, solicitors, and scam artists.

Joint Tenancy Property Ownership

When you and your spouse open a checking account, buy a car, purchase a home, or acquire just about any other asset you can think of, the first — and usually only — impulse is to put the title in both your names as Joint Tenants.

Additionally, many families, including parents with young children, choose Joint Tenancy as their estate plan because they’ve heard it is a cost-free replacement for a Will and that it avoids probate. These individuals focus on the fact that at the death of one of the owners, Joint Tenancy immediately passes full ownership of an asset to the surviving Joint Tenant by operation of law. So, yes, it does circumvent probate and avoid the need for a Will, at least temporarily. Unfortunately, they’re overlooking the fact that upon the death of the surviving Joint Tenant, the entire estate will have to pass through probate. It also brings with it a slew of problems that more than offset any short-term convenience it provides. In fact, Joint Tenancy can end up costing you — and your loved ones — many times the expense and headaches you thought you were avoiding.

For example, if you should pass away unexpectedly and your surviving spouse remarries, your jointly owned assets may end up being considered community property, causing you to lose control on how you would have wanted your children’s inheritance to ultimately be distributed.

A solution many rely on is to establish a Revocable Living Trust and re-title their assets in the name of the Trust. The Trust will avoid probate and provides protection in case your surviving spouse remarries, allowing you to specify when and how you want your assets distributed to your children.

Estate Tax Liability

Lastly, in addition to enduring the expense and delay of probate, without an estate plan, your beneficiaries may have to pay unnecessary federal estate taxes on their inheritance. Additionally, many states have state estate or inheritance taxes at much lower levels. The survivor of a married couple might be able to use the exclusion of the predeceasing spouse, as well as their own. However, in order to be able to get “portability” of the deceased spouse’s exclusion, a federal estate tax return must be timely filed, even if it would not otherwise be necessary to do so. There are many reasons that a couple might plan to have the first spouse leave their assets in a “Family” or “B” Trust for the benefit of the survivor and children, rather than relying on portability. A Family Trust not only locks in the deceased spouse’s exclusion amount, even growth of the Trust would be excluded from the survivor’s estate. Further, the Trust could be exempt from tax even in the estate of the children. Portability does not allow for this.

A separate Family Trust allows for many protections that portability does not provide. The Trust can provide creditor protection, both in the event of remarriage and divorce from other creditors. Also, a Family Trust can lock in the ultimate beneficiaries of the assets. This can be important to blended families.

Special Considerations FOR Divorced Parents and Blended Families

In this age of divorce, remarriage, and blended families, parents who are divorced or remarried have an even greater need for estate planning – and more difficult challenges to overcome. Without a carefully designed estate plan there is much at stake for blended families and the children involved.

Naming a Guardian

Single and divorced parents have a higher need for estate planning than anyone because they may not have a partner to care for their children if something should happen to them. The guardianship or custody of children whose parents are divorced usually falls to the ex-spouse, as long as he or she is the biological parent. However, in the rare case of that individual being unable or unwilling to care for the children, then another guardian would be appointed by the court. Nominating a guardian in a Will would allow you to have a say in who should take care of your children.

Problems with Outright Distribution of Assets

Another concern is the management of the minor children’s inheritance. When assets are distributed outright to minor children being cared for by an ex-spouse, the ex-spouse may have control over how the inheritance is managed. Similarly, if a step-parent has been appointed as the guardian, then he or she has authority to manage the inheritance of the children. In either case, your wishes regarding your children’s inheritance may not be followed. However, your minor children can’t be expected to manage their own money at such a young age. So what’s the solution? Holding assets in Trust with a Successor Trustee to manage those assets, instead of outright distribution, ensures that your children’s inheritance is handled fairly and distributed in exact accordance with your wishes.

Dying Intestate

As we’ve discussed before, if you die without an estate plan, your estate will be subject to the intestacy laws in your state and go through probate court. The division and distribution of your estate will be subject to a predetermined formula, usually providing half of your estate to your new spouse, and the remaining half being allocated in equal portions to your biological children. For many parents in blended families, the state’s distribution plan is worlds apart from how they would have chosen to distribute their assets themselves.

For example, if your blended family includes your spouse’s children from a prior marriage, whom you have raised, but never formally adopted, this formula would not provide an inheritance for them. Similarly, if you have adult children from a prior marriage and minor children with your new spouse, you may want to provide more financial support to your minor children than provided by state guidelines.

Ownership of Property

When it comes to ownership of property, most married couples are joint owners of all of their assets. However, with blended families, this may not be the wisest choice. If you’ve remarried and established joint ownership of property with your new spouse, you may be unintentionally disinheriting your children from a prior marriage. In the event that you pre-decease your new spouse, they will get the ultimate say in who inherits your jointly-owned property or if your new spouse dies intestate, the state will decide for them. This could very likely result in those assets being inherited exclusively by your new spouses’ children from their prior marriage – completely disinheriting your children. A proper estate plan can help address matters of property ownership among blended families and ensure that your children’s inheritance is preserved.

Each blended family is unique, and similarly, each couple has its own set of goals to accomplish. Preserving the relationships between the step-parent and the step-children after the death of the parent and spouse is usually one of those goals. Proper estate planning can tailor a solution to help meet those goals.

Choosing a Guardian

Guardians of minor children are “nominated” in the Will by the last parent to die. Guardians are typically “nominated” rather than appointed because the courts will give preference to the nomination but are not bound by it. If a court determines that the best interest of the child would be better served by another choice, they need not heed your suggestion. However, while the nomination of a guardian is not a guarantee, it does allow you to give the court guidance, which it will use to make its determination. If all other things are equal, the court will heed your advice.

Nominating a guardian for your children is the most important – and, in many cases, the most challenging – part of the estate planning process. Here are some factors that you should consider when choosing a guardian:

  • Age: You need to consider both the age of your children and the age of the potential guardian. If your kids are young, you need to select someone who will be emotionally and physically able to care for them in the long-term. While a grandparent may have the best emotional connection, they may not be able to make the kind of commitment necessary to raise your children to adulthood. On the other hand, it’s also possible to choose a guardian that’s too young to handle such a large responsibility. Therefore, it’s important to consider both the age and emotional maturity of your guardian candidates.
  • Parenting Style, Religion and Values: Every parent has differing opinions on discipline, education, and even curfew. Therefore, it’s vital that you take these things into consideration when choosing a guardian. Ask yourself what’s most important to you in terms of values and religion, and then assess whether the guardian you have in mind shares those views. If you’re unsure, ask them. You might be surprised by their answers.
  • Stage of Life: Think about the stages of life your potential guardians are in. Are they married or single? Are they likely to get married or divorced? Do they have their own children, and if so, are yours likely to fit in? If they are single now, is a future spouse going to be supportive of their guardianship? What about their career? Are they married to their job, or close to retirement? All of these factors will have a tremendous impact on your children’s lives, so take your time and choose carefully.
  • Location: Sometimes we underestimate the effect of a location on our everyday lives. But, where a child grows up has an enormous influence on the person they become later in life. Things like neighborhoods, school systems, and nearby relatives seem like obvious variables when thinking about the location of a potential guardian. But what about less obvious factors like climate? Moving from a warm climate to a cold one, or vice-versa, can be a big adjustment for a child. Lastly, it’s important to weigh the likelihood of frequent changes in location. Will the guardian have recurrent moves or job changes? In some cases, this is impossible to predict, but nevertheless helpful to consider.
  • Relationship: It’s not necessary for your chosen guardian to be a blood relative, but it’s best if they are at least familiar to your children. If you have never seen this person interact with your kids, how will you know what kind of parental role this person would play with your kids? It would be much easier for both the guardian and your children to grieve and adjust if they already had a good relationship with each other. Obviously, in rare cases, it is necessary to choose a person who is distant from your family. This option should be exercised only as a last resort. It’s important to note that even if your children are particularly close to one aunt, uncle, or friend, remember that this person would potentially fill the role of parent, not best friend. So be sure to keep all of the other considerations in mind as well.
  • Willingness: Speak to all of your guardian candidates before you make a decision. After all, having to assume a guardianship is a life-changing responsibility, and not to be undertaken lightly. Although, in reality, it’s unlikely that your chosen guardian will need to fulfill that role, it’s important to secure their consent before naming them.
  • Financial Position and Responsibility: An important part of the estate planning process is making sure that your loved ones are provided for financially. Ask yourself whether your chosen guardian is financially stable enough to raise a family. Do they have problems hanging on to money? What are their spending habits? If you have doubts about their abilities to manage finances, but you’re convinced that they would make the best guardian for your children, you may want to consider talking to a qualified attorney about Trust provisions that can make this easier.

In addition to discussing your wishes with your chosen guardian, it is recommended that you and your partner write letters of intent for your children. These letters can vary significantly, but most people use the opportunity to describe their expectations and hopes for their kids. A letter can be a much more comfortable format for expressing these desires than a verbal discussion, and it also serves as a permanent record. It is recommended that individuals update their letters of intent yearly or bi-yearly as their circumstances evolve.

Whether you have several guardians in mind or just one, it’s vital that you weigh each and every variable to determine if he or she is the right person to care for your most valued treasures: your children.


In addition to naming a guardian for your children, every parent needs a Power of Attorney to authorize someone to make financial decisions in the event you become incapacitated by an unexpected accident or illness. The appointment of a trusted individual to make these financial decisions helps ensure financial stability for your spouse and your children during your incapacity. The Power of Attorney and nomination of a guardian allow someone you have chosen to care for your minor children in a loving and attentive manner, rather than as the subject of a cold impersonal court bureaucracy.

When executing a financial Power of Attorney, you will want to discuss the implementation of a Health Care Directive and Health Insurance Portability and Accountability Act (HIPAA) Authorization Form with your estate planning attorney. A Health Care Directive will allow you to select an agent to make health care decisions for you, in the event that you are unable to do so for yourself, and to state your wishes for the types of life-sustaining or invasive medical treatments that you do and do not want administered. A HIPAA Authorization Form will allow the individuals you select to have access to your medical records and authorize doctors to release information to them about your current medical status.


If you are like many Americans and do not currently own sufficient assets to secure your minor children’s financial future, you may want to purchase, at the very least, a term life insurance policy. For as little as a few hundred dollars a year, you can gain several-hundred-thousand dollars in coverage. It is wishful thinking and risky to assume that whomever you name as a guardian will be willing and able to financially provide for your children. Taking out an insurance policy is truly one of the easiest and most beneficial things you can do to protect them.

However, selection of life insurance beneficiaries is an often-misunderstood process with potentially devastating consequences. Unfortunately, directly naming minor children as the beneficiaries will seldom achieve your estate planning goals and creates unnecessary delay and expense in providing for your children. A better option is naming a Trust as beneficiary of the policy and providing terms to a Successor Trustee for management of the children’s inheritance. Consult with an estate planning attorney to determine the best way to ensure your life insurance proceeds are used for the benefit of your children, while maximizing asset protection and minimizing taxation.

Estate Tax Planning

When you pass away, all assets you own, including your home, vehicles, life insurance policies, retirement plans, and even personal belongings are considered part of your estate. When you total the full value of those assets, it may be quite easy to exceed the federal estate tax threshold. With a proper estate plan in place, various tax planning strategies can be employed to reduce or even eliminate, in some circumstances, the need to pay federal and state estate taxes.


A Will is oftentimes one of the most basic and widely used estate planning tools. Simply put, a Will is a legal document that describes how you want your assets distributed at your death. It also names the guardians of your children.

A Will only goes into effect at your death. Upon your passing, an executor, whom you name in your Will, oversees the distribution of your estate to any heirs named, however, the actual distribution of your assets is controlled by the probate court. Additionally, a Will also does not provide you with lifetime planning, an increasingly important consideration now that Americans are living longer. Of course, passing away with a Will expressing your wishes is much better than dying with no plan at all.

A Contingent Trust for Your Child’s Benefit

An estate planning strategy popular among parents who choose to plan with a Will is the setup of a contingent Trust for a child’s benefit. In the case of the parents’ death, the Will initiates the formation of a Trust to hold your child’s inheritance and functions in the same way as a Living Trust, with the ability to hold assets for distribution when your child comes of age or reaches milestones which you stipulate. The assets are managed by a Trustee that you appoint. This type of Will-based plan is called a Testamentary Trust.

The main drawback to this type of planning is that assets must still go through probate prior to being transferred to the Trust. However, a Testamentary Trust is still far superior to a Simple Will and avoids any problems that may result from outright distribution of assets to children, which may be supervised by the court, as a result of using only a simple Will.


Why It Is Often the Best Choice

One of the most comprehensive and well-designed estate plans is the Revocable Living Trust. A Living Trust is set up in such a way that the Trust owns the assets to be left to the heirs, thereby avoiding probate. In most cases, the parents name themselves as the Trustees and someone else (a family member, friend, guardian, banker, or investment expert) is named as the Successor Trustee. Upon the death of the Trustee or Co-Trustees, the Successor Trustee becomes responsible for the management of the Trust assets. Like the executor of a Will, he or she is required to manage and distribute the estate strictly according to the terms of the Trust.

With a Living Trust, or a Testamentary Trust under a Will, you can choose to delay the distribution of the inheritance to your heirs until they reach certain milestones, earmark it for college tuition, or reward hard work and career achievements. A Living Trust may also be drafted to protect your assets from your heir’s creditors and future ex-spouses, and any financially inexperienced or irresponsible decisions.

In the case of very young children, regular disbursements from the Trust can be arranged to cover expenses such as medical costs, maintenance, or travel. A Living Trust ensures that your children will be provided for until adulthood and beyond.

Provisions for keeping assets in Trust, such as the examples above, can also be included in a Will, directing the creation of a Testamentary Trust after death.

Avoiding Probate

Because the Living Trust technically owns the assets, they are not considered part of the probate estate, and therefore, are not subject to the probate process. Instead, the Trustee oversees the distribution of the property according to the specific terms of the Trust. This arrangement yields several important benefits.

Avoiding probate means not only avoiding the hassle and expense, but also saving time. When young children are depending on an inheritance, the last thing they need is to have their livelihood tied up in the court system. Even though your children may get a small allowance while your estate is in probate, the time delays of the court process can extend the amount of time before your heirs receive their full inheritance significantly—by months or even years—especially if the Will is contested. A Trust is a better way to give your family faster, unfettered access to the funds they need.

Your privacy is also maintained through a Living Trust, whereas in the probate system, your personal matters could be broadcasted to the masses. The average Joe off the street has no business knowing the names of your children, who has custody of them, and how much inheritance they are to receive.

Maintaining Control

Living Trusts may be harder to contest than Wills. Part of the reason is that Trusts usually involve ongoing contacts with bank officials, Trustees, and others who can later provide solid evidence of the owner’s intentions and mental state. A Living Trust that has been in place for a long period of time is less likely to be challenged as having been the product of undue influence or fraud.

Pour-Over Will

Every Living Trust has what is called a “Pour-Over Will” as part of the complete estate plan. It has two functions within the plan. First, this is where you will nominate a guardian for your underage children. Secondly, it functions as a safety net for any assets not transferred into your Trust, stating that any such assets should be transferred and owned by the Trust.

Special Needs Circumstances

A Trust can be especially appropriate in the case of heirs with special needs. A Special Needs Trust can be set up to financially provide for your special needs child without jeopardizing their government benefits. Additionally, if your child will be unable to make financial decisions for him or herself even as an adult, then a Trustee can be an indispensable aid in making sure he or she will be well taken care of.


One thing should be clear by now; we do our families a great disservice when we fail to plan for every contingency. That’s why a critical first step in your planning process should be a consultation with an attorney who focuses their practice in estate planning. Taking the time to form a thoughtful, detailed, and durable estate plan will ensure that you, your spouse and your children are provided for in the event of a tragedy.

© American Academy of Estate Planning Attorneys, Inc.

Keeping Up With The Ever-Changing Estate Tax

Why Create An Estate Plan?

As 2013 started, the estate planning world had a new law: The American Taxpayer Relief Act of 2012 (ATRA), enacted January 2, 2013. In order to understand the current estate tax situation, we have to go back to 2001, and look at how we got to the current state of affairs.

Historical Review: The Repeal of the Estate Tax

During the first half of 2001, both houses of Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, or “EGTRRA,” and President Bush signed the Act into law. EGTRRA made changes to a wide range of tax laws, including far-reaching changes to the federal estate tax system.

It gradually increased the amount of money that people could pass on, tax-free, at death. In 2002, the amount an individual could pass on without paying estate tax was $1 million. By 2008, the amount excluded from estate tax increased to $2 million, and in 2009, the estate tax exclusion amount jumped to $3.5 million.

Finally, in 2010, the federal estate tax was repealed altogether.

Because of budgetary issues, the repeal was designed to be effective for one year only. The estate tax repeal, and EGTRRA itself, were scheduled to “sunset” on December 31, 2010. But that didn’t happen.

2011: The Estate Tax is Back

At the end of 2010, no one quite knew what, if anything, Congress was going to do about the estate tax. Initially, 2010 marked a one-year repeal of the estate tax. If Congress chose to do nothing, we were facing a return to the $1 million estate tax exclusion, with a top tax rate of 55%.

On December 17, 2010, after lengthy discussion and debate, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which became known as “TRA 2010.”

ATRA made TRA 2010 permanent and changed the rate of taxation.

In late 2017, Congress passed yet another tax law, which doubled the exemption to $10 million (adjusted for inflation from the 2011 base year).  However, after 2025, that law “sunsets” or expires, and the law reverts to the prior law’s “permanent” $5 million exemption (adjusted for inflation from the base year of 2011).

The Good News

When it comes to the estate tax, TRA 2010 made three major changes. These involve the estate tax exclusion amount, the tax rate and a new portability provision.

Federal Estate Tax Exclusion

As you know, not everyone’s assets are subject to the estate tax. Each person gets what’s called an “estate tax exclusion.” This is the amount of property that can be passed to your heirs and beneficiaries free of the estate tax at the time of your death. For the years 2010, 2011, and 2012, the temporary exclusion amount was set at $5 million (inflation adjusted). ATRA made this amount permanent and adjusted it for inflation. The 2017 law doubled the ATRA exclusion amount (temporarily). In 2018 it is 11.2 million.

Federal Estate Tax Rate

If the value of your estate exceeds your exclusion amount, and therefore ends up being subject to the estate tax, the top tax rate was 35% through 2012. ATRA increased the rate for 2013 and later to 40%.


With TRA, Congress also introduced a new “portability” provision. This is where one spouse can add their deceased spouse’s remaining estate tax exclusion to their own exclusion to shelter more from taxes. This portability provision, also known as the “Deceased Spousal Unused Exclusion Amount,” can be used to shelter the assets of the surviving spouse. However, portability only applies if the estate of the first spouse to die files an estate tax return, even if it would not otherwise be required. Further, portability does not provide remarriage protection, asset protection, or other advantages which might be available with proper planning. ATRA made portability permanent.

Federal Gift Tax

What happens to the gift tax under the new law?

Annual Exclusion

The annual exclusion amount for the federal gift tax is $15,000 for 2018, and it will be adjusted for inflation in 2019 and later years. This means the maximum value of gifts you can give to a single recipient without filing a gift tax return and without tapping into your lifetime exclusion, (discussed below), is $15,000 per year. Spouses can combine their annual gift tax exclusions and give gifts of up to $30,000 in value to each recipient each year.

Lifetime Exclusion

What if your annual gifts to one recipient are more than the annual exclusion amount? You can use a portion of your estate tax exclusion to make lifetime gifts, but then your exclusion would not be available at death. You can use your entire exclusion during life. Of course, then you would not have any available at death.

Federal Gift Tax Rate

As with the estate tax, the top gift tax rate for the years 2011 and 2012 was 35%. ATRA increased the rate to 40% for 2013 and later years.

State Estate and Inheritance Taxes

In addition to the federal estate and gift taxes, outlined above, many states have a separate state estate tax or inheritance tax. A state estate or inheritance tax typically applies to those who die when residents of the state or owning property in the state. A state estate tax typically works just like the federal estate tax. You add up your estate and then you get taxed on everything over a certain amount. An inheritance tax is similar but is based on the relationship between the deceased person and the person receiving property. The problem is that the state estate and inheritance taxes typically kick in at a much lower level than the federal estate tax. In other words, an estate which might escape without owing any federal estate tax might end up paying a significant state estate tax.

What is My Estate Worth?

To determine what your “estate” is worth (and could be taxed on), let’s break it down. You’ll need to include all of the following assets for both you and your spouse:
• Checking and Savings Accounts
• Home and Other Real Property
• Timeshares
• Cars and RVs
• 401ks and Other Retirement Accounts
• Deferred Annuities
• Pensions
• Profit Sharing Accounts
• Stocks, Bonds and Trading Accounts
• Life Insurance (full matured face values, not cash values)
• Collections
• Jewelry
• Furniture
• Antiques and Artwork
• All Other Personal Property
• Ownership in Businesses
As you can see, your combined estate value can quickly add up!

Planning and the Uncertainty

While today’s tax law provides for a substantial exclusion, we do not know what the tax law might be in the future. Just as easily as Congress passed prior laws, it could pass another law that changes the exclusion again, or otherwise upsets the apple cart that is your estate plan. That’s why it is important to review your estate plan periodically with an experienced estate planning attorney.

Those with $5.6 Million in Combined Net Worth

If you and your spouse have a combined net worth of $5.6 million or more, or if you are single and have a net worth of $5.6 million or more, having an estate tax plan in place is essential. And remember, the IRS counts assets like life insurance policies and retirement accounts; so, you may have a higher net worth than you realize.
An estate planning attorney can let you know for certain whether you need to worry about estate tax planning, and if you do (and choose not to rely on portability), he or she can help you shelter your estate tax exclusion in a Family Trust so that your hard-earned assets go to your loved ones instead of to Uncle Sam, other creditors, or a future divorcing spouse. An estate planning attorney may also be able to help you save more by using advanced estate planning methods like an Irrevocable Life Insurance Trust, a Family Limited Partnership, or a Grantor Retained Annuity Trust.

With the future of the estate tax in such a state of uncertainty, it’s essential that you stay in touch with your estate planning attorney. He or she can keep you updated on any changes in the law – and let you know if your tax planning strategy needs to change accordingly.

Those with Less Than $5.6 Million in Combined Net Worth

If your combined net worth is under $5.6 million, it doesn’t mean you are off the hook and should not put a plan in place. There are other important reasons families set up estate plans like wills or Living Trusts. Those reasons may include wanting to avoid the public and sometimes expensive process of probate, added complications of blended families and remarriages with step-children, protection from divorce (yours or your children’s) or creditor protection. Consulting with an experienced estate planning attorney can help you sort through your goals and concerns to determine which type of plan is best for your personal situation.

What Should I If I Have an Estate Plan?

As we have seen time and time again, the tax laws continue to change ― sometimes benefiting us and sometimes not. With this in mind, it is important to do regular reviews of your estate plan to make sure you are taking full advantage of all the tax savings opportunities and avoiding paying too much in taxes whenever possible. Also, if you have had changes in your family situation (births, adoptions, divorces, marriages, remarriages or deaths), your estate plan needs to evolve and change, addressing any new goals or concerns you may have.

Those with Simple Trusts

A simple trust, such as a Revocable Living Trust, may not minimize your estate taxes. Your estate planning attorney can help you find an appropriate estate planning method, like an AB Trust if appropriate, to shelter your assets and reduce your estate tax liability.

Those With Wills

A will guarantees that your remaining assets (home and other real property), regardless of their worth, will be subject to a public probate process, which many families wish to avoid. In some states, probate can be a lengthy and costly process which can hold up valuable funds while it runs through the court system. Even if you are not worried about your family having to deal with the probate process, you may want to protect them and your hard-earned assets from other everyday situations which can result in a significant loss of those assets. These asset-losing snags often come into play when you have blended families, remarriages with step-children, creditor problems, divorces (yours or your children) or if you become disabled. Will-based plans often do not provide appropriate provisions to address these common concerns. It is always good to review your will-based plan with an estate planning attorney to make sure it addresses all of your current, and more importantly, future concerns.

Estate Planning is More Than Just Tax Planning

Whether or not you think your estate will be affected by the changes in the tax law, it is essential that you have an estate plan in place. Why? Because tax planning is just one small portion of a comprehensive estate plan.

An estate plan brings certainty and stability to the lives of your loved ones. It gives them direction for how your assets are to be managed should you become disabled or pass away. It allows you to decide who will care for your minor children and to have a plan in place for providing for your children, even after you’re gone. Most of all, it allows you to protect your loved ones from the turmoil and uncertainty that are guaranteed if you fail to plan.

© American Academy of Estate Planning Attorneys, Inc.

Planning It Right the Second Time Around

According to a study by the National Center for Health Statistics of the U.S. Department of Health and Human Services, 20% of first marriages face “disruption” (defined as separation or divorce) within the first five years. One-half of all first marriages face disruption within the first 20 years of marriage.

After disruption of the marriage, most people remarry. 75% of divorced women remarry within ten years. This trend toward multiple marriages has resulted in millions of “blended” families. While each family is unique, blended families bring even more challenges for estate planning. Each spouse may have children from prior marriages and the two spouses may have children together. Spouses may come to the marriage from different financial positions.

In the traditional couple’s estate plan, the couple wants the surviving spouse to have access to all of the assets at the first spouse’s death. They typically want the assets split equally among their children at the death of the survivor. This traditional couple’s plan often does not meet the needs of blended families.

A growing number of blended families will use a combination of two trusts to gain greater flexibility. The first trust, the Family Trust, contains the first spouse’s estate tax applicable exclusion amount. The assets in the Family Trust can be used for the benefit of any of the children when the predeceasing spouse wishes to benefit. The assets can also be used for the surviving spouse. The second trust is a Qualified Terminable Interest in Property (QTIP) Trust. A QTIP Trust leaves assets in trust for the surviving spouse. All of the income goes to the surviving spouse during his or her lifetime.

However, at the death of the surviving spouse, the assets are distributed as the predeceasing spouse directed. In other words, the assets could go to the children of the predeceasing spouse if desired. The surviving spouse does not have to have the ability to alter the disposition. By leaving assets in the QTIP Trust, they qualify for a marital deduction at the death of the first spouse. This means there need not be any estate tax due at the death of the first spouse.

The assets of the other spouse can have a completely different set of beneficiaries than the assets of the predeceasing spouse. So, the husband could leave the assets in the Family Trust to the wife for her life and then to his own children. On the other hand, the wife may decide the husband has sufficient assets and leave the Family Trust directly to her own children, excluding the husband. Both the husband and wife might decide to leave assets over the estate tax exclusion amount in QTIP Trusts for each other.

Each blended family is unique. Each couple has its own set of goals to accomplish. Proper estate planning can tailor a solution to help meet those goals. A qualified estate planning attorney can help you decide upon a plan that fits your unique situation.


Fortunately, some good news does exist within the arena of divorce, and it comes from none other than the IRS. Here’s the benefit. The IRS generally does not consider the transfer of assets between divorcing spouses a taxable event. This includes cash that one spouse pays another as part of the divorce settlement. There are a few restrictions to this rule, but as long as you can demonstrate that you are divorcing for legitimate reasons not related to tax savings, you and your soon-to be ex could transfer cash and assets without fear of a tax gain or loss to either party. At least, not in the short-term future.


As in most divorce settlement negotiations, you and your spouse will probably have several bargaining chips on the table. One may be the dependency exemption for your children. These exemptions mean a lot to lower and middle income taxpayers, but not as much to high income Americans as a result of the deduction phase out.
But as often happens after divorce, there may be a significant disparity in earnings between you and your spouse. And in that case, the dependency exemption may become a chip worth bargaining for.


Couples whose divorce won’t be concluded by December 31 of a given year will have to make a difficult decision regarding the filing status they choose on their tax returns. Married filing separate is the most costly filing status available. That’s why, if you and your spouse can agree to it, you may want to continue filing jointly until your divorce is final. There are two notable exceptions to this rule, however.

Exception 1: You probably shouldn’t file jointly if your spouse has incurred taxes that he or she won’t be able to pay. By filing jointly, you assume liability for your spouse’s taxes as well as your own. If the IRS can’t get satisfaction from your spouse, it will turn to you for payment.

Exception 2: You may not want to file jointly if you suspect that your spouse isn’t fully disclosing income or is falsifying deductions. Once again, you may be held liable for your spouse’s tax liability, plus associated penalties.


Let’s assume that you are your spouse own stock that has appreciated substantially since you bought it. Purchased for $50,000 five years ago, the stock is now worth $100,000. If the two of you decide to sell the shares today, the gain would be $50,000, or the difference between your original investment and the selling price.

If you decide you’d like to keep the stock, and pay your spouse $50,000 (half the current market value) for full ownership, your total investment becomes $75,000. However, if you sell the shares, the cost basis used to determine your capital gains taxes won’t be the $75,000 you’ve actually invested in the stock. Instead, the government will look at your original cost basis – $25,000 – and your spouse’s original cost basis – also $25,000 – and deem that your actual cost basis is just $50,000! Therefore, the $50,000 cash you paid your ex-spouse for the stock goes to him or her tax free, while you are left with a hefty capital gains tax.


Fortunately, all the problems described above can be neatly countered with a well-designed tax and estate plan. If you already have an estate plan in place, your main concern will be having it updated as a result of the new changes that your divorce has introduced into your life. For most, these estate planning issues are of greatest concern during a divorce:

  • Controlling to whom, when and how assets are divided today, and how they will be distributed after death
  • Capturing every tax break available during the divorce transition
  • Maintaining control and management of certain assets
  • Renaming beneficiaries

Here are three estate planning strategies that may help you achieve these objectives:

The Revocable Living Trust

This popular estate planning tool is unlike a will in that it allows you to avoid probate which brings on potential delays, expenses and public exposure. Instead, upon your death, your designated Successor Trustee assumes responsibility for management and distribution of your assets, which are owned by your Revocable Living Trust. Your trustee will follow the directions you have provided in your trust documents, including when you want assets distributed, to whom and by what means.

The Children’s Trust

Another estate planning strategy popular among parents is the Children’s Trust. It allows you to set aside funds which may be used at a later time to pay for college education or purchase a first residence.

The Irrevocable Life Insurance Trust

The Irrevocable Life Insurance Trust, or ILIT, accomplishes several important objectives. First, it lets you remain in control of the distribution of your life insurance policy’s proceeds long after you’re gone. As with the Children’s Trust, the ILIT disperses policy proceeds to your beneficiaries when and how you want. Because the trustee of the ILIT is your designee, you also ensure the proceeds remain out of your ex-spouse’s reach.


Any of these solutions, or a combination of all three, may help you achieve the tax advantages and control you seek. Equally important is the peace of mind you’ll gain when you know that, come what may, your children will be well provided for. ecause your goals and your family’s situation are unique, seek out the counsel of an attorney who concentrates on these estate planning strategies. Only he or she will be able to show you how you can best employ them for your children’s benefit.

© American Academy of Estate Planning Attorneys, Inc.

What Every Senior Should Know About Probate

Just what is probate? Living probate is a legal process that determines your fate when you cannot, generally because you’ve been disabled by injury, illness, or mental incapacity. Death probate is the process that disposes of your estate after you die. Having a will virtually guarantees that your estate will go through probate. While probate attorneys might be happy with these definitions, trust attorneys would draw your attention to all the problems that come with probate: red tape, expense, publicity, delay, loss of control, and in the case of living probate, potential for personal humiliation.


Way back in 1989, the American Association of Retired Persons (AARP) decided to look carefully at probate and its impact on seniors. As the organization reported in its study, Probate: Consumer Perspectives and Concerns, probate is a special concern for older Americans.
The study found that 90% of all probate cases involved the disposition of property owned by people 60 years of age or older. Because the chances of becoming incapacitated increase dramatically as we age, living probate is also much more likely to involve seniors.

AARP went on to reveal that consumers nationally spend as much as $2 billion or more each year on all probate-related expenses, with attorneys’ fees alone representing more than $1.5 billion of that amount. The study noted that attorneys’ and executors’ fees could consume as much as 20% of small estates, and as much as 10% of even uncomplicated estates . And that’s only the beginning. Add to these fees such expenses as court costs and appraisers’ fees, and your heirs could end up with a legacy that’s considerably less than you intended.


AARP found that probate usually comes into play after the surviving spouse of marriage dies. Most couples own property jointly. So, at the first death, much if not all of their property immediately becomes the sole possession of the survivor. When the survivor dies, however, their property will have to go through probate before it can pass on to their heirs. Since few couples take into consideration probate costs, many would be saddened to learn how big a dent it will make in their intended gifts.

Seniors aren’t the only ones who may be blind-sided by probate. Their children and grandchildren may feel the bite as well. A study by American Demographics Magazine revealed that many Baby Boomers are so financially strapped today that they are deferring an important financial goal: saving for retirement. Instead, they are counting on their inheritance from Mom and Dad to help pad their meager retirement funds.

So, the higher the probate fees, the less of a legacy they will receive, and the harder it will be for them to retire.


Unreasonable expenses aren’t probate’s only drawbacks. There’s also the time involved.
AARP’s study found that probate frequently lasts longer than a year. Having a will seemed to make no difference in the time required. In fact, it could drag the process out even longer.

Now, add to the expenses and delays of probate these problems: a loss of control over one’s affairs and the publicity it requires. You can see why AARP declared that:

Probate as it is generally practiced in the United States is anachronism… and, to the extent that the probate system is unreasonable, attorney’s fees in connection with the probate work are unreasonable.


AARP’s edict sums up the reason for so much rancor between pro-probate and pro-trust attorneys. It’s a matter of money, and lots of it. The AARP study noted that attorneys often build lucrative practices focused solely on probate. Many use cheap wills as a “loss leader.” According to AARP:
This marketing practice may set a costly trap for consumers. Attorneys lay the groundwork for their probate practice by writing wills. Some write wills cheaply as a way to generate other business, prompting the companion to loss leader discounts in retail trade. When the client dies, the same attorney, or other member of the firm, probates the will at a high fee enough to recover any money lost on the earlier discount.

But not all attorneys have been happy with the status quo and escalating consumer dissatisfaction with probate. A growing number, such as the members of the American Academy of Estate Planning Attorneys, would rather spare their clients the expense, delay, publicity, inconvenience and potential for public humiliation that can be such an integral part of the probate process.


“Death Probate” has these primary functions:

  • It verifies the validity of your will.
  • It inventories and establishes the value of your significant assets.
  • It provides your creditors with the opportunity to make claims against your estate.
  • It gives disgruntled family members a forum for challenging your will.
  • Lastly, when all these steps have been completed, it transfers the title to your property to your heirs, as you’ve instructed in your will.

Do you really need probate to accomplish these tasks? AARP says no. Instead, it recommends alternatives such as the Revocable Living Trust.


Whether you die with a will or without one, probate will be required if you owned any property in your own name. A Living Trust makes probate unnecessary by changing the way you own your property. Although you still have absolute control over all your assets, just as if you owned them directly, you do not own property in your own name. Instead, your Living Trust owns your property. And you own your Living Trust.

At first blush, that can sound like a scary proposition. But it isn’t, because you are the trust maker, the trust owner and trust beneficiary. So you and you alone control your trust and the assets it owns. You can buy, sell, trade, derive income from, mortgage and give away your trust assets, just as before. You can change your trust, add to it, or even revoke it any time you want. Bottom line: the fact that your trust owns your property has little, if any, impact on the way you live and conduct business each day.

But what a difference the trust makes when you die. Then, the person you’ve chosen to take charge of your trust, your successor trustee, steps in and follows your direction for the disposition of your estate. Because you owned no property in your own name, there’s no need for probate. So there’s no publicity and, compared to probate, very little expense, delay or inconvenience for your family.

Living Trusts are also indispensable for avoiding the indignity of living probate, the court proceedings that determine who will oversee your affairs in the event of your disability. A Living Trust helps you ensure that your physical and financial needs are handled as you would want them to be.

The Living Trust isn’t exactly a new idea. Its origins date back hundreds of years. More importantly for Americans, the concept has been used in the U.S. since 1765 when Patrick Henry drafted a trust for Robert Morris, governor of the Colony of Virginia. During this century its many proponents have included John F. Kennedy, William Waldorf Astor, John D. Rockefeller, H. L. Hunt, Bing Crosby and Frank Sinatra. As consumers become better educated about the pitfalls of probate, all signs point to Living Trusts becoming even more popular in the years ahead.


Now that you know all the problems that probate entails, it’s probably the last thing you’d want to bequeath your loved ones. But is it a strategy worth pursuing only if you’re a Rockefeller or Vanderbilt?
Absolutely not. Even if your estate is valued at no more than $100,000, you should probably have a Living Trust to avoid death probate. And regardless of how much your estate is worth, you should definitely have a Living Trust if you want to avoid living probate.

Who should you turn to for help with your Living Trust? The American Academy of Estate Planning Attorneys recommends that you start with an attorney who concentrates on this area of the law. That’s the best way to ensure that your legal professional has invested the time and energy to providing you with the most current estate planning techniques.

But be wary. Remember that wills and probate are also estate planning tools. So make sure your attorney focuses on the Living Trust, rather than wills.


Once you’ve worked with your estate planning attorney to draw up your Living Trust, don’t stop there. Taking advantage of everything this powerful estate planning tool has to offer requires these final steps:

  • Make sure you fund your Living Trust. Remember that it only works if the title to your property has been transferred to the trust. If you keep your property in your own name, you’ve defeated its purpose. These days, most financial advisors are experienced in funding Living Trusts, so be sure to turn to your advisor for help if you need it.
  • Keep your Living Trust current. As you acquire new property, be sure that you transfer title to these assets to your Living Trust.

Ideally, a Living Trust is a living, breathing document, and a plan that will serve you for many years to come. That means, however, that you’ve got to take the time to have it updated as your family’s situation, your goals, and your needs change. A good estate planning attorney will stay in touch with you over the years to ensure your Living Trust continues to serve you well.

Yes, it is true that a Living Trust will cost you more up front than a “discount” will. But in estate plans, as in all other areas, you get what you pay for. The bargain you buy today might just cost you or your heirs a fortune – your fortune – down the road.

© American Academy of Estate Planning Attorneys, Inc.

The Trouble with Joint Tenancy

Although Joint Tenancy offers some short-term conveniences, in the long run it poses a host of problems that can cost you and your loved ones many times the expense and headaches you thought you were avoiding.

It happens almost automatically.  When you and your spouse open a checking account, buy a car, purchase a home, or acquire just about any other asset you can think of, the first — and usually only — impulse is to put the title in both your names as Joint Tenants.

Married couples aren’t the only ones relying on Joint Tenancy.  This ownership strategy is widely used by friends, life partners, parents and their children, among others.  It’s an ownership method so pervasive, many consumers often say they know of no others.

Why is Joint Tenancy so frequently employed?  Ironically, otherwise well-informed consumers choose Joint Tenancy because they’ve heard it is a cost-free replacement for a will and that it avoids probate.  These consumers focus on the fact that at the death of one of the owners, Joint Tenancy — or more precisely, Joint Tenancy with Right of Survivorship — immediately passes full ownership of an asset onto the surviving Joint Tenant by operation of law.  So, yes, it does circumvent probate and avoid the need for a will.  At least for the moment.

What all too many Americans unfortunately overlook is the fact that Joint Tenancy only temporarily avoids probate.  It also brings with it a slew of problems that more than make up for any short-term convenience it provides.  In fact, Joint Tenancy can end up costing you — and your loved ones — many times the expense and headaches you thought you were avoiding.

Consequences include:

  • Joint Tenancy may avoid probate at the first death.  But upon the death of the surviving Joint Tenant, the entire estate will have to pass through probate.
  • Joint Tenancy means that the first person to die loses all control over to whom or how his or her assets will ultimately be distributed.
  • With Joint Tenancy, spouses effectively lose their right to a double federal estate tax exclusion.
  • Depending on the state in which you reside and the state in which the joint tenancy property is located, Joint Tenancy may expose assets to capital gains taxes that otherwise could have been avoided.
  • When the Joint Tenants aren’t husband and wife, gift taxes may be due.
  • Joint Tenancy exposes one Joint Tenant to the financial risks, liabilities, and other potential problems created by the other Joint Tenant.

Let’s take a closer look at each of these areas and how they may affect you.


Frequently called the “Poor Man’s Will,” Joint Tenancy is often used as a replacement for wills and as a tactic for avoiding probate.  But this is only half the story.  Joint Tenancy does alleviate the need for probate when the first owner dies.  But when the second/last owner dies, the entire estate goes through the often costly, time-consuming and nightmarish probate process.

After 30 years of marriage, Gene and Marjorie Cummings had accumulated the usual trappings of married life. The home they bought 25 years ago for $100,000 was now worth $500,000. When they added in the value of their autos, furnishings, and cash accounts — all held in Joint Tenancy — they were slightly amazed to discover their estate was worth $1.5 million. When Gene died suddenly, Marjorie immediately became the sole owner of their $1.5 million estate by operation of law, circumventing the probate courts. But upon her death 15 years later, the entire estate — now worth over $2 million — was subjected to probate.


Today more Americans are involved in second marriages than in first. And often, remarriage means that either one or both of the partners has children from a previous marriage. Whenever a parent holds property in Joint Tenancy with a spouse, children are effectively disinherited. That’s one reason why parents with children from a prior marriage should rarely, if ever, own property in Joint Tenancy with a new spouse. Instead, remarried parents should choose ownership strategies that will help them ensure their children are well provided for in the event of their death.

Even when children from a prior marriage aren’t a factor, you may want to think twice about whether you want to give up total control over how the fruits of your life’s work are distributed at your death. Since many widows and widowers will eventually remarry, there’s a strong likelihood that someone your spouse may marry in the future will be the ultimate beneficiary of your estate. For some people, that’s of little concern. But most of us would rather see our assets benefit a relative, friend or favorite charity, rather than some stranger we’ve never met.


As an estate taxation planning device, Joint Tenancy is not optimal. As the death of the first tenant, there may be little concern. Through the Unlimited Marital Deduction, the government lets spouses pass assets to one another at death estate tax-free. However, when the survivor dies, estate taxes can reduce the legacy the couple thought they were leaving behind. Why? At the death of the survivor, the value of the entire property is included in the survivor’s estate. If the sum of all of the survivor’s property is less than the amount that can be passed free of estate tax, this may not be a problem. This amount is $5 million for federal tax purposes, indexed for inflation. However, many states have a separate state estate or inheritance tax which kicks in at a much lower level.


Couples who live in one of the nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — pay a high price when they put assets in Joint Tenancy rather than owning them as community property. In these states, using Joint Tenancy can actually expose your estate to costly capital gains taxes. Here’s how.

The capital gains tax, that often-debated revenue generator for the federal government, is a tax levied against your profit when you sell an asset. To determine the amount of capital gains against which the tax will be applied, you deduct your cost basis in the asset — meaning your investment in it — from the price it fetches when you sell it. The difference is your capital gains, and that’s the sum which will be used to compute your capital gains tax. For instance, if you bought rental property for $125,000 and sell it later for $200,000, you would owe capital gains taxes on $75,000.

The federal government provides a capital gains tax break on assets in a person’s estate. Called a step-up in basis, it simply means that when you die, the government will consider your heir’s cost basis in an asset to be its current market value, not your original purchase price. So, if the rental property you originally bought for $125,000 is worth $200,000 when you die, your heir’s cost basis would be $200,000. If your heir sells it for that price, no capital gains tax will be due.

A very taxing situation occurs, however, when you live in a community property state but hold title to an asset in Joint Tenancy with your spouse. Instead of getting that step-up in basis on the entire sum — as your survivor would if the asset were community property or owned outright by you — the government allows him or her only half the step-up in basis.  That means when the asset is sold, more of the profit will be subject to costly capital gains tax.

California residents, Nick and Sandy Worthington, had an admirable art collection, with pride of place going to an acclaimed Matisse.  It was one of the first pieces they bought, paying $50,000 for it several years ago.  When Nick died last year, the painting was appraised at a whopping $500,000!  Unfortunately, Nick and Sandy had placed ownership of the painting in both their names, as Joint Tenants, rather than owning it as community property.  That meant the painting received the favorable step-up in basis treatment on only half its value.  So, much to Sandy’s dismay, instead of a cost basis of $500,000, she now has a cost basis of only $275,000.  If she were to sell the painting today, $225,000 of her profit would be subject to capital gains tax, an expense she could have avoided completely if she and Nick had titled ownership of the painting differently.


So far, we’ve focused primarily on the impact of Joint Tenancy and married couples.  But frequently, Joint Tenancy is used as a method of ownership between non-spouses.
For instance, friends often buy property together.  An aging relative will often make a younger relative a Joint Tenant on property or cash accounts.  Parents make their children Joint Tenants with them on everything from cash accounts to cars to the family home.

Unfortunately, the government takes a dim view of these transactions, sometimes considering them to be gifts, not estate planning strategies.  That’s why many Americans are shocked to discover that the step they’ve taken to avoid wills and probate will in the long run cost them many, many times more money than it saves.  Let’s look at some examples.

When a non-spouse is added to the title of property as a Joint Tenant, the government deems it to be a gift.  Gift taxes will become due, and the donor — the person presumably making the gift — will usually be liable for the taxes.  (Under extreme circumstances, however, the done — the person receiving the gift — may become liable.)  How much gift tax is due and when it is due depends on the asset.

For example, elderly relatives commonly add a younger relative or an adult child to their checking accounts, savings accounts and other cash accounts as a convenience.  As long as the new Joint Tenant withdraws money strictly for the use of the original Joint Tenant, no gift taxes are due.  But if he or she withdraws money for personal use, the original Joint Tenant will have to pay gift taxes on that amount.

The gift tax situation is even more dire when real estate is involved.  At the time a new Joint Tenant — who is not the spouse of the original Joint Tenant — is added to the title of real property, the government considers a gift to have been made.  Gift taxes will then be due on the portion of the property the new Joint Tenant receives.  For example, if a father decides to add his son as his Joint Tenant on his personal residence, the government will consider that the son has been given a gift equal to half the home’s value, and demand the father pay gift taxes accordingly.

Of course, there are some exemptions available for gifts.  Each year you may give away up to “pre-determined dollar amount”, indexed for inflation, per individual — and to as many individuals as you want — with no gift taxes due. Gifts in excess of that amount reduce the gift and estate tax exclusion. The gift and estate tax exclusion is $5 million, adjusted annually for inflation.

So, in many cases, the mere fact that you’ve added someone’s name as Joint Tenant to your checking account or real property may not actually require you to part with cold hard cash. Even if your gift falls within the exclusions described above, however, you must still report it on your federal gift tax returns.


When you own property with a Joint Tenant, each of you owns half of the asset. That means you effectively lose control of half the property. Whether your Joint Tenant is your spouse or someone else, the implications of this exposure to loss are frightening. For example, half of your asset held in Joint Tenancy could be lost as a result of:

  • Your Joint Tenant’s bad debts, back taxes or bankruptcy
  • Your Joint Tenant’s divorce
  • Lawsuits or damage awards filed against your Joint Tenant

More than exposure to risk, Joint Tenancy also deprives you of the day-to-day autonomy and control in managing your own asset. Consider, for example, that property is held in Joint Tenancy with someone else:

  • You may have to obtain your Joint Tenant’s consent before you sell, pledge as collateral or engage in any other transaction involving your property.
  • You may have to obtain the approval of your Joint Tenant’s spouse before you can dispose of your property.
  • Your asset may fall under the jurisdiction of your Joint Tenant’s living probate, if your Joint Tenant becomes incapacitated through illness or injury.
  • If your Joint Tenant is a child, your shared property may be the subject of guardianship hearings.
  • If your Joint Tenant is a child, you run the risk that his or her financial inexperience, emotional immaturity, or the inevitable mistakes that are part of the growing experience, may have a disastrous financial impact on your shared asset.\
  • Liquid assets — such as cash accounts — can be depleted by your Joint Tenant without any safeguards to protect you.


Early on we said that Joint Tenancy is so pervasive, many people are hard-pressed to think of an alternative. Fortunately, there are several. For instance, you can own property solely in your own name. Or you and another person can own property as tenants in common. If you live in a community property state, you can elect that ownership option. Or, in some states, you can seek the special creditor protection spouses receive under tenants by the entirety. Each of these options avoids some of the pitfalls of Joint Tenancy.

However, none of them — and that certainly includes Joint Tenancy — is a replacement for the thoughtful estate planning that a qualified estate planning attorney can provide you.  In fact, all the objectives you might try in vain to achieve through Joint Tenancy can be achieved much more effectively through an option such as the Revocable Living Trust.  With a Revocable Living Trust, for example, you can:

Control exactly how your estate is distributed — including who your beneficiaries will be, when they will receive your legacy and how they will receive it. Ensure that children from another marriage — or children who have special needs — will receive fair treatment from your estate.

  • Reduce your estate taxes or eliminate them completely.
  • Take advantage of all other tax breaks to which you might be entitled.
  • Retain complete control over your assets while you live.
  • Put your legacy out of the reach of your heirs’ predators, creditors and others seeking a piece of your estate.
  • Choose when, where and how you will make gifts to friends, family and worthwhile organizations.
  • Enjoy peace of mind in the knowledge that you can make provisions for your care should injury, illness or some other incapacity make you unable to do so for yourself.

© American Academy of Estate Planning Attorneys, Inc.

Where There’s a Will, There’s a Probate

Many Americans think that passing on their worldly goods is a simple proposition: they write out their final wishes, then, someone ensures that their wishes are carried out. Unfortunately, wills require probate, and in many states, there’s nothing simple about probate. It’s usually a highly technical, complicated and bureaucratic process that can drown your heirs in a sea of red tape. There are exceptions, however. In some states, small estates may be eligible for short-form probate. See your estate planning attorney to learn how your state’s probate rules will affect your estate.


Roughly speaking, the process begins with the filing of your will and a petition to the courts to begin probate. The probate court will either approve your choice of executor (the person who will oversee the disposition of your estate) that you may have named in your will, or will appoint someone else to act as executor. Unless your estate is fairly simple, your executor may also hire an attorney to help with the process. (You may stipulate that your attorney also serves as your executor, for a modest savings in administration fees.)

At some point, your executor will have to present your will to the court and obtain its ruling on the validity of this document. Your executor must publish notification of your death and contact all your creditors so that they can submit their claims against your estate.

And we’re just getting started. Someone will have to inventory the valuables you’ve left behind, and appraisers may be called in to establish their value.

Depending on the state in which you lived, your heirs may be denied access to your assets until the final disposition of your estate. And in most states, a contest over the validity of your will virtually guarantees that your assets will be placed off limits until the will contest is decided.

Here is another aspect of probate that can cost your heirs dearly. Your executor must adhere to stringent rules governing your investments during the probate process. These rules limit your executor’s ability to buy, sell or take other action to preserve the value of fluctuating investments—such as stocks, bonds, and real estate in your portfolio. So, if in the midst of your probate, a bull market turns bearish, the bond market goes south, or the real estate market plunges, your heirs could be left with assets that have depreciated substantially.

At best, your heirs may be inconvenienced by their lack of access to and control over your assets during probate; at worst, they may endure financial hardship. So, if they breathe a sigh of relief as your probate begins to wind down, they may be in for a disappointment.

Before your heirs receive their full legacy from your estate, your creditors will be paid off, estate taxes will be paid, your executor and administrator will receive their fees for handling your probate, and all court fees will have to be settled. After these expenses have been paid, your heirs will divvy up what’s left—and it’s often considerably less after probate than before.

That’s a quick overview of the probate process. At best, it’s a bureaucratic nightmare. At worst, it exposes your heirs to the following problems:


Your probate proceedings will usually be published in a general circulation newspaper in your community. This unwelcomed publicity goes well beyond turning your life into an open book: it can also expose your loved ones to the abuse of opportunists. Con artists, creditors, overly aggressive sales people, and those eager to exploit any financial weaknesses in an estate, routinely avail themselves of probate records. They may simply be looking to buy your personal effects at a heavy discount, or they may wish to prey on your loved ones for more sinister reasons. Regardless of their motives, they pose a threat you’ll want to shelter your loved ones from. And you can’t do that if your estate goes through probate.


The good news is that probate usually ensures that your wishes for your loved ones probably will be carried out as you’ve directed. The bad news is that it will take time, and in the intervening months—or even years—your family may have precious little access to your assets.

The average length of time for probate varies from state to state. But in general, you can expect your probate can take 1 to 3 years , and that’s if your affairs are relatively straightforward. It isn’t uncommon for probate to take several years.


It goes without saying that a process this bureaucratic and time-consuming, with such a large cast of characters, exacts a considerable price. Everyone gets paid: the attorney, your executor, the appraisers, the courts, the taxing authorities, and your creditors. Only after they’ve gotten their cut will your heirs be able to take their share out of what’s left. How much of your estate remains will vary considerably. If yours is a complex estate, or if there is litigation, such as a will contest, the expense of probate can seriously erode what’s left for your loved ones. But having a simple estate and a well-drafted will doesn’t protect you from probate’s expenses.

Whether they get paid a flat fee or fees based on a percentage of the value of your estate, the services of an attorney, executor and appraisers will reduce the assets your loved ones inherit. Probate fees vary from state to state, but here are the national averages: attorney’s fees alone will range from 2% to 4%   of the value of your estate, with a median of 3% ; your executor’s fees will range anywhere from 1% to 5%   (if your attorney also serves as your executor, the total fees likely will be reduced somewhat); add to their fees such expenses as the appraisers’ fees and court costs, and your estate’s value could be reduced by as much as 15%, or more .

If you are married and you and your spouse have based your estate planning on a Simple Will, in some states you can expect your estate to go through probate twice—once after the death of each spouse. So, you may have to double the impact of all probate’s expenses on the value of your estate.


The estate tax has been the subject of a great deal of fluctuation in the last 10-15 years. The amount that could be passed free of estate tax changed nearly every year. However, in search for ways to reduce the federal deficit, Congress will likely continue to make changes in the future. A married person can transfer an unlimited amount to their spouse through the use of the Unlimited Marital Deduction. However, the surviving spouse would have to pay tax on all the assets at their death. Unless “portability” was elected at the death of the first spouse, the surviving spouse would only have his or her own exclusion to use.

While “portability” simplifies things and can be useful in some circumstances, it does not necessitate an estate tax return to be filed at the first death, even if it would not be otherwise required. A Living Trust can be a great way to minimize estate taxes and other problems. There are many reasons that a couple might plan their Living Trust to have the first spouse leave their assets in a separate “Family” or “B” Trust for the benefit of the survivor and children, rather than relying on portability. A Family Trust not only locks in the deceased spouse’s exclusion amount, even growth of the trust would be excluded from the survivor’s estate. Further, the trust could be exempt from tax even in the estate of the children. Portability does not allow for this.

A separate Family Trust allows for many protections that portability does not provide. The trust can provide creditor protection, both in the event of the survivor’s remarriage and subsequent divorce, and even from other creditors. Also, a Family Trust can lock in the ultimate beneficiaries of the assets. This can be important, especially in blended families.


Simply making out a will doesn’t mean things will go as you planned. Disgruntled family members, creditors, “predators,” and other would-be spoilers can throw a monkey wrench into the works.
Probate is a vulnerable time for your loved ones. Just about any disgruntled relative can contest a will, with potentially devastating consequences. Defending against a will contest is a costly process that can delay the disposition of your estate considerably. That’s why spoilers employ it. They know the threat of these additional expenses and delays is often enough to intimidate heirs into a settlement they may not be entitled to. Even if your heirs decide to fight a will contest and ultimately prevail in court, they may find they’ve won the battle and lost the war.


Is it any wonder the only fans of probate are probate lawyers? In contrast, most Americans who know what probate entails try to avoid it at all costs.
In case you’re thinking you can spare your heirs the hassles of probate by dying intestate, without a will, forget it. The creaky wheels of probate are set in motion whether you have a will or not. And if anything, probate becomes more complicated, not less so, when you die intestate.

So, if you’ve decided that probate is the last thing you want to bequeath your loved ones, how do you avoid it?

Instead, you could turn to a handful of strategies for circumventing the probate process. There’s no probate, for example, on assets such as IRAs, life insurance policies, and pension plans for which you name a beneficiary. Also, any assets you hold in “joint tenancy with rights of survivorship” pass immediately to your joint tenant. And, of course, you can simply give away your assets while living. While these methods avoid the pitfalls of probate, they have plenty of shortcomings of their own, and should be used carefully and only in certain circumstances. (For more information on joint tenancy, see our Academy Report titled, The Trouble with Joint Tenancy.)


For many reasons—avoiding probate being just one of them—the Revocable Living Trust is widely considered the most effective and versatile estate planning tool. The first discovery you’ll make about the Living Trust is that it avoids probate. So, you’re immediately avoiding problems that come with it:

  • Publicity
  • Delays
  • Expenses
  • Opportunities for Spoilers

In contrast, with a Living Trust, you safeguard your privacy, dramatically expedite the disposition of your estate, significantly reduce costs, and greatly diminish opportunities for spoilers to upset your plans. Those advantages alone are enough to make Living Trusts the estate planning tool of choice for many Americans. But consider these additional benefits that Living Trusts provide as well:

  • You can use a Living Trust to take care of your healthcare and financial needs should you become disabled. Considering that for most of our lives we face a much greater likelihood of becoming disabled than dying, a Living Trust can provide considerable peace of mind.
  • A Living Trust can help you maximize estate tax planning.
  • A Living Trust gives you maximum control over the disposition of your assets. For instance, if you have children from a previous marriage, you can ensure that your spouse and your children receive fair treatment.
  • A Living Trust dramatically reduces the threat of “spoilers.” In most states, your trust can also include a ‘no-contest’ clause which deters greedy claimants from attacking your estate plan.
  • As long as your Living Trust owns your assets, it protects them from your heirs’ creditors and “predators.” So, a daughter won’t see the legacy you’ve left her become the spoils of a divorce settlement. Or a son won’t find the assets you bequeathed him depleted by his creditors.
  • A Living Trust will allow you to control your assets long after you’re gone. That’s especially important if you’ve left behind minor children or young adults who may need time to grow into their financial responsibilities.


With a Living Trust, you own nothing, and your trust owns everything. But not to worry. Since you are your trust’s trustee and beneficiary, you retain complete control of your assets. You can derive income from your trust, sell assets, acquire new assets, and do anything you need to with the property in your trust. And rest assured, as its name implies, you can amend or revoke your trust at any time. In every practical sense, having a Living Trust is almost identical to owning all your property directly.

The difference occurs when you die. Since you technically owned nothing, there’s no property that needs to go through probate. Instead, your property is quickly distributed according to the precise instructions written into your trust. Carrying out your instructions is your handpicked agent—your successor trustee—who will follow your directions to the letter. There’s no need to obtain the approval of a court, no additional expenses, and no details of your Living Trust are made public.

These advantages are so important they bear repeating: with a Living Trust, your estate completely avoids the publicity, expense, delay, and other disadvantages of probate.


Creating a Living Trust tailored to your unique needs, reflecting the laws in your state, and delivering the greatest benefit to you and your family requires expert help—and that means an attorney, preferably one who concentrates his or her practice on estate planning.

But not just any estate planning attorney. If you go to one who has built a practice around probate, don’t be surprised if what you get is a will. In fact, many attorneys offer substantial discounts on will preparation, counting on the substantial fees they will earn when your estate goes through probate. Instead, look for an attorney who emphasizes Living Trusts.

Once a prospective attorney demonstrates sufficient expertise in Living Trusts, make sure he or she passes the next most important test: Does the attorney listen well? If not, move on to the next candidate. Why? Because no two clients have the same circumstances, financial profiles, and family situations. So listening carefully to you will be the only way your attorney can ensure he or she is providing you with a Living Trust that meets your needs.

Next, consider how well the attorney will be able to work with your family. It will be a great comfort to them to have on hand a professional who was not only familiar with your wishes, but who also has the expertise and people skills to help them through what may be an emotionally difficult time.

Finally, choose an attorney with whom you can feel comfortable sharing your hopes, dreams and fears. Creating a Living Trust is an intensely personal experience, during which we consider our own mortality, take a hard look at our life’s work, deal with family dynamics, and decide how we’ll provide for our loved ones. Your attorney should have the professionalism, tact, and humanity to help you explore all these issues, and resolve them in a way that leaves you feeling satisfied, with lasting peace of mind.

© American Academy of Estate Planning Attorneys, Inc.