| In a past article I relayed the plight of the widow who | | | | what is called the "marital deduction." So, in our simple |
| stated: | | | | will example, there would be no estate tax since |
| "I didn't realize what an A-B Revocable Living Trust | | | | everything you leave to your spouse is tax free. |
| meant and that it had to be divided between the | | | | Uncle Sam is patient. He is willing to wait until the |
| survivor and the deceased spouse and that I am | | | | second spouse to die passes away. Now, he gets to |
| limited as to what I can use from his share." | | | | collect his tax on the total of both shares: the |
| She told me that she only learned of this after her | | | | husband's share and the wife's share. |
| husband passed away. This is too late for many (there | | | | What happened with the "simple will" is that you have |
| is a way to collapse an A-B Revocable Living Trust, | | | | wasted the federal estate tax unified credit amount |
| which we'll talk about in another article). | | | | (currently $1.5 million) that can be left tax free to |
| First, what is an A-B Revocable Living Trust? I spend a | | | | anyone. |
| great deal of time going over this in my free | | | | So, what the A-B Revocable Living Trust is designed |
| Multi-Media Course, available at Basically it is the | | | | to do is to capture and preserve the federal estate |
| splitting of a husband and wife's estate into two | | | | tax unified credit amount available when the first |
| shares, his share and her share. The reason is to | | | | spouse dies. It does this by creating what is often |
| capture, or use, the estate tax unified credit amount | | | | called the "credit shelter" trust. |
| that each spouse receives on death. | | | | The "credit shelter" trust (the "B" trust in an "A-B" |
| Let's explain. Since we know Uncle Sam likes to | | | | Trust) is an irrevocable trust that springs into being out |
| receive his inheritance too, whenever there is a death, | | | | of your Revocable Living Trust when the first spouse |
| we always need to ask "is there a tax?" | | | | dies. This trust is designed to be managed by the |
| When we talk about taxes on death, we are talking | | | | surviving spouse for the benefit of the surviving |
| about the federal estate tax (your state may also | | | | spouse, without giving the survivor any "taxable |
| have a tax, sometimes called an estate tax or an | | | | incidents of ownership." |
| inheritance tax. The difference is who is liable for | | | | What this accomplishes is that upon the death of the |
| payment of the tax... the estate or the inheritor? But | | | | second spouse to die, the assets that had been |
| let's not get side-tracked on the state tax. Let's stick | | | | placed into the "credit shelter" trust are not considered |
| with talking about the federal estate tax). | | | | to be owned by the second spouse to die. Therefore, |
| So let's say you have a "simple will." In a simple will, you | | | | they are not included in or taxed as part of the second |
| will usually say "when I die, leave everything to my | | | | spouse to die's estate. |
| spouse." Very Simple. | | | | This can often save hundreds of thousands of dollars, |
| Now, is there a federal estate tax? First, realize that | | | | since the federal estate tax rate kicks in at 37% and |
| the passing of property on death is a privilege and not | | | | goes up from there. |
| a right. Therefore, it is taxable event. Even though it is | | | | Good luck and until next time, |
| a taxable event, however, the tax code tells us that | | | | Phil Craig |
| everything that is left to our spouse is tax-free under | | | | P.S. Feel free to forward this on to any friends. |