A trust is an estate planning tool that can help you avoid probate and tax burdens, maintain continuity of ownership in the event of death or disability, and avoid access to property by creditors.
When you create a trust, you create a separate legal entity. You can then title property in the name of the trust. Once you transfer property to a trust, you no longer have ownership of the property, but may use the property pursuant to the terms of the trust. There are a number of advantages to a trust:
As a general rule, the cost for preparing a trust is substantially more than the cost for preparing a will. In addition, there may be expenses incurred in the administration of a trust.
Trusts are generally categorized as:
The AB Trust
An AB trust, also known as a credit shelter trust, allows a married couple to pass the maximum amount of an estate to their children or other beneficiaries, but also ensures that the surviving spouse is financially comfortable during his or her lifetime.
With an AB trust, each spouse leaves most or all of his or her property to the trust rather than leaving it to the surviving spouse. The surviving spouse can use that property, with certain restrictions, but doesn’t own it outright. This allows for larger tax savings. The property isn’t subject to estate tax when the second spouse dies because the second spouse never legally owned it.
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