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Paul Premack, Express-News Banner

San Antonio Express-News
Copyright 2009, Paul Premack
March 31, 2009

Q&A on Living Trusts, Part 2

Last week, "W.N." asked whether a living trust would be an appropriate estate-planning tool for him and his wife. I started listing questions and answers about living trusts. If you don’t have a copy of last Tuesday’s newspaper, click here to review it.

Is an unfunded living trust a good choice? Sometimes, living trusts are established and only a token amount is transferred into the trust (an "unfunded" trust). Since an unfunded trust is essentially empty, you must have a strategy to turn over your assets at some future date. Typically, you give the Trustee a durable power of attorney. Then, if you become disabled, the Trustee runs like mad to convey your assets into the trust before you die. The Trustee must act quickly since the power of attorney legally ends when you die.

When you have no family or anyone else close, you can call on a bank trust department to manage your trust. You can begin by naming yourself as Trustee of your fully funded trust (with the bank as alternate Trustee) or you can begin by naming the bank as Trustee of your unfunded trust. Either way, the bank’s authority is delayed until you become disabled.

However, if you die unexpectedly an unfunded trust provides no significant benefits. Your assets are still owned by you personally, not by the trust. As such, the assets go through probate. The unfunded trust did not help you to avoid probate, and your Will is used to distribute your estate. That is why unfunded living trusts are the less common variety.

Does a living trust provide estate tax savings over using a Will? From a tax standpoint, a "living trust with estate tax planning" and a "Will with estate tax planning" are identical. They can each be structured to save exactly the same amount of federal estate tax, and both use the exact same technique. The real difference is procedure and privacy: a fully funded Living Trust does not go through probate, while a Will of this type must be probated. It is the estate tax plan that reduced taxes; the type of document in which the plan is contained is secondary.

Any proper estate plan can be written to include provisions to reduce taxes or can be written to ignore the tax issue. It is legally appropriate to omit estate tax provisions when the exemption provided by law will automatically eliminate the tax. Specifically, anyone who dies in 2009 with an estate larger than $3.5 million will pay estate tax (and a married couple, with proper planning, can eliminate tax on up to $7 million). Anyone who dies in 2010 will pay no estate tax at all, no matter the size of the estate.

But current law expires in 2011. Anyone who dies in 2011 with an estate over $1 million will owe estate tax. There is no logical consistency to the law now, and a bill has been filed in Congress to freeze the exemption at the 2009 level of $3.5 million per person. As of press time, that bill is still pending in committee.

New location next week. Due to a new format that will soon begin, this will be my last column in the print version of the Express-News. Starting April 7th 2009 the column will appear on the Express-News website (visit My thanks to my wife Ruthie Premack who has always edited this column before it went to the newspaper, to my editors at the Express, and to you, my readers. I hope you have found answers to some of life’s puzzling legal issues, and I invite you online to keep up with future developments.

Prior Column: Q&A on Living Trusts, Part 1
Next Column: Durable Power of Attorney: Statutory Form is Flawed

Disclaimer: This column answers a specific legal question asked by an individual in Texas. The answer may or may not match your individual situation. Be careful not to treat this column as specific legal advice, as it may not meet your individual needs. It may give you a solid basis for discussion with your own attorney.  You should consult with your personal attorney before you take any action on this or any legal issue. Also, please be aware that laws change, so  this column is valid only as of the date it was published. This communication does not create an attorney-client relationship between the author and the reader.


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