Trusts for Married Couples

Estate Planning Attorneys Serving San Jose and Surrounding Areas

In the past, a married couple often chose the form of a trust that they created together based on how the trust could affect which estate tax savings were available to their children after they passed. Under the American Tax Relief Act of 2012, spouses can now shelter over $10 million from the estate tax, irrespective of trust type. The amount exempt from the estate tax is temporarily now twice what it was, such that spouses can shield over $20 million. Your spouse and you can now select a form of trust based on how much and which type of control you want to have over trust assets. If you are interested in exploring the various types of trusts for married couples, you should consult the Sowards Law Firm. Our San Jose estate planning attorneys can develop a strategy for your specific situation. Many variables can affect which trust would best serve your needs, such as capital gains tax, retirement planning, and income tax.

Trusts for Spouses

California follows the law of community property, which means that each spouse owns a half interest in community property and a full interest in any separate property. Each spouse is allowed to decide who receives their half of the community property when they die. Often, spouses set up joint trusts, but there are a number of issues that should be addressed to determine which trust is appropriate.

When a spouse wants to leave their share of the community property to a survivor. such that the survivor has total control over the decedent’s share, there may be different options than when the couple wants the spouse who passes away to retain some control after their death. When the spouses want the survivor to have complete control, a Survivor’s Trust may be set up. When each spouse wants to maintain some control after their death, a Bypass, QTIP, or ABC Trust should be set up.

The decision about the type of trust to create will affect whether and which tax savings may be provided to the couple’s children after the deaths of the spouses. Spouses can guard over $10 million in assets (and sometimes more) from an estate tax, no matter which kind of trust they execute. However, each type of trust allows for varying levels of control, as an estate planning lawyer can explain.

Simple Living Trusts for Married Couples

Simple living trusts are often considered the easiest kinds of trusts to set up and keep. In a simple living trust, a couple can share the control and benefits of the trust while they are living. Once one spouse dies, the other spouse will have total control over the trust. After one spouse’s death, the survivor can alter the beneficiaries if they wish. Once the survivor passes, the assets in the living trust will be distributed to beneficiaries without probate. However, estate taxes will be imposed if the size of the survivor’s estate exceeds the applicable exclusion amount that a survivor can access upon death. An exclusion will turn on whether a survivor filed an election when the deceased spouse passed and made a large lifetime gift.

A/B Trusts

While both spouses are alive, an A/B Trust involves the same kind of administration as a living trust does. Once a spouse dies, the A/B Trust splits the estate into two. The Bypass Trust will be the same as the applicable exclusion sum or the decedent’s separate property and half of the community property, whichever is less. The Survivor’s Trust will include the balance of the assets.

The Survivor’s Trust is for the survivor’s use without limitation. The surviving spouse can also amend this trust. Even if the surviving spouse is the sole beneficiary or trustee of the Bypass Trust, the Bypass Trust will restrict the spouse’s use of funds to support, education, health, and keeping up a particular living standard.

When funds are needed for presents or recreational travel, they should be pulled from the Survivor's Trust, and the survivor of the marriage cannot alter the Bypass Trust’s beneficiaries. The Bypass Trust shields the decedent’s heirs, since the marriage’s survivor does not have the power to alter the beneficiaries or reduce the funds for other reasons. However, the survivor will need to do more work to administer the separate accounts contained in the Bypass Trust. A Bypass Trust will transfer to heirs without estate tax, even if the assets grow in value to more than the relevant exclusion amount.

A/B/QTIP Trusts

Wealthy couples may wish to establish an A/B/QTIP Trust. In this arrangement, when one spouse dies, a certain amount is held in the Bypass Trust, but the rest of the estate is held only by the survivor in a Survivor’s Trust. This form of trust permits greater control for the decedent and more than the applicable exclusion amount kept in the Bypass Trust. What exceeds the exclusion amount is put in the QTIP Trust, for which the survivor is the only beneficiary. Under certain circumstances, the survivor can change the beneficiaries and terms of the Survivor’s Trust, and only what is in the Bypass Trust is distributed to the people whom the decedent hoped would have benefits. When the spouses have a huge estate or do not agree about how assets should be distributed to beneficiaries, such as when there are kids from a prior marriage, the A/B/QTIP Trust can be a more suitable arrangement than the A/B Trust.

Seek Guidance From a Trusts and Estates Lawyer in San Jose

If your spouse and you want to investigate the various types of trusts for married couples, you should get advice from an attorney who is experienced in these matters. At the Sowards Law Firm, we assist couples in San Jose, Campbell, Mountain View, Palo Alto, Santa Clara, Berkeley, Oakland, Concord, Walnut Creek, San Rafael, Salinas, San Mateo, Santa Cruz, and San Francisco. Call us at 408-371-6000 or contact us through our online form.