STANDARD TRUST (MOST COMMON)
With a Standard Trust upon the death of the first spouse, any debts, taxes and expenses are paid and specific bequests of the deceased distributed.
Then 100% of the remaining assets are left in the trust. The surviving spouse can make changes to the trust, including adding, removing, or changing the distribution allocations for beneficiaries, adding and removing assets or even dissolving the trust.
The Standard Trust is a common option for smaller estates not concerned with estate taxes, families without significant sole & separate property, and families without children from a previous relationship.
Essentially an AB Trust 'splits' upon the death of the first spouse, the Standard Trust does not.
AB Trust
An AB Trust is a way to manage and pass on assets when one spouse dies. It creates two trusts: Trust A for the surviving spouse and Trust B for the deceased's chosen beneficiaries.
Why Use an AB Trust?
Split Assets: When the first spouse dies, assets are divided into two trusts, possibly in unequal values, based on ownership.
Fixed Decisions: The deceased's decisions about Trust B are final. The surviving spouse can only manage Trust A.
Protects Interests: Ensures children from previous marriages receive their inheritance and protects assets from the surviving spouse’s creditors.
Benefits of an AB Trust
Tax Advantages: Can help avoid estate taxes, especially useful in states with their own estate taxes not covered by federal laws.
Security for Heirs: Protects the inheritance for children from previous relationships, despite changes in the surviving spouse's life.
What is "Trust Date"
Trust Date is very important because it effectively becomes part of the "name" of your Trust.
In all future documentation and communication you should refer to your trust both by name AND date.
For example:
"Hatfield Family Trust dated on: 10/01/1970"
You CANNOT sign your trust BEFORE this date, but you can sign it afterwards. Most users simply use today's date.
Please note that once selected, this date CANNOT be changed so be sure you are ready when you pick your Trust Date.
Over time people may need to make changes (amendments or restatements) to their trust. The trust date makes it easy to specify which trust you are refering to; you cannot complete your trust until you have selected a Trust Date.
What are Spend-Thrift Provisions?
Spendthrift provisions in a revocable living trust are clauses that protect the trust's assets from being seized by creditors of the trust's beneficiaries and ensure that they are used for the benefit of the intended beneficiaries, rather than being taken by their creditors.
For example say your beneficiary is being sued, or is in the middle of a divorce. If they were to get their inheritance at this time, once the funds get transferred to them they could be seized by creditors, they could even try to force the beneficiary to "sign over" their future inheritance they haven't received yet. Without these protections, your legacy, the legacy you intended for your heirs, ends up lining the pockets of creditors & their attorneys.
With "spend-thrift provisions" the beneficiary's share is held in trust for them until the creditors are gone/settled. Creditors can't seize these funds, or attempt to attach or place a lien against future distributions. The trustee can even use these funds to help pay bills for beneficiary (such as tuition, rent, cell phone, etc...) so they never touch an account where creditors could seize them.
Do you or your spouse have property that is not community or marital property?
Separate property is usually acquired before marriage. This property may be part of any pre-nuptial agreement if one exists, but a pre-nup is not required to have separate property.
If you select "Yes", your property/assets will maintain its "Character", in other words if it was separate property before it went into the trust, it will remain separate property.
If you select "No", then all property and assets will be considered community property once it is placed in the trust.
Surviving Spouse Rights
Deciding who has control over assets after your death is a core purpose of creating a trust, but control must be balanced against the amount of credit protection you want for the surviving spouse.
If you provide unlimited access to trust assets to a surviving spouse, you provide tremendous flexibility. However with that flexibility is some risk.
If the surviving spouse has control over the assets, then it could be seized by the courts to pay debts or judgments as the result of a lawsuit.
This is a personal question as to how much you want to balance flexibility versus long term support & credit protection.
If you have an IRA and you want your trust to qualify for IRA "see-through" the IRS requires that the surviving spouse MUST have limited access (irrevocable upon the first to die). Please consult an attorney if you have questions about if an IRA "see-through" provision is something you may need in your trust.
Do you want to VOID your Trust in case of Divorce?
If you answer 'YES' to this question in the interview the following lines are added to the Trust:
"If our marriage is dissolved at any time this Trust Agreement shall become null and void.
It is our intent that our respective property held in our Trust shall not be used for the benefit of the other spouse upon the dissolution of our marriage."
If you answer 'NO' then your Trust will persist even after a divorce.
You will need to remember to amend the Trust after, or as part of, any divorce settlement. Should one of you die without amending the Trust, assets will be distributed according to the original terms (which may not reflect your new situation).