Understanding Estate Taxes
10. Living trust with tax planning (A)
All they had to do was include a tax-planning provision in their living trust(s).
This splits their $10 million estate into two trusts of $5 million each. When Bob dies, his trust, shown on the right, uses his $5 million exemption. And when Sue dies, her trust, shown on the left, uses her $5 million exemption.
The result is that their taxable estates are both reduced to $0, so the full $10 million can go to their loved ones.
Now, let me explain a few more things about how this works. Sue has complete control over everything in her trust and she can do anything she wants with its assets -- it's her trust.
But she cannot have complete control over the assets in Bob's trust. If she did, they would have to be included in her taxable estate when she dies.