Establishing a living trust can be a smart estate planning strategy for people who want to allow their beneficiaries to avoid the time and expense of probate. However, it's important to closely follow the trust administration process so that each phase is completed correctly. An experienced attorney can help guide clients through the process outlined below.
Inventory and Valuation of Assets
The initial step of
estate planning involves creating a complete catalog of all assets, including those that will be held in the trust and those that are in the estate but separate from the trust. Each asset must be accurately valued for tax purposes and labeled to establish ownership. Certain items may require an appraisal by a specialist. After valuation, assets must be retitled to reflect ownership by the trust, not the individual.
Asset Allocation
Living trusts can have an A/B or A/B/C setup, which allows a surviving spouse to serve as the beneficiary while helping them avoid the cost of estate taxes, Medicaid spend-down of assets, and creditors. When he or she is deceased, the trust will pass to the couple's children or other established beneficiaries.
Upon the individual's death, the named trustee is responsible for gathering the estate's assets and paying any outstanding bills or death taxes. He or she will then distribute the assets according to the instructions created when the trust was established.
Tax Obligations
The trust administrator must register with the IRS for a separate tax ID number for the trust by filing Form SS-4. When the decedent dies, it may be necessary to submit Form 706 (Federal Estate Tax Return) to establish a value for the assets held by the trust. The person's spouse is exempt from estate taxes up to the threshold set by the IRS, which is $11.4 million per individual as of 2019. Trust assets exceeding this value will be taxed at 40 percent. If the estate is taxable based on this cap, Form 706 must be filed within nine months of the decedent's death.
Depending on the specifics of the situation, other tax forms may be required. These often include Form 1041 for income tax payments, Form 5495 for discharging personal liability, Form 56 for establishing a fiduciary relationship, and Form 4810 for requesting a prompt assessment.
Because estate planning is such a complex process, the guidance of an
experienced attorney can help ensure that your wishes are fulfilled and your beneficiaries are taken care of. If you live in Victorville or another part of the Inland Empire, contact Medeiros & Associates Lawyers at 760-241-1234 to
schedule a consultation.
