Understanding Estate Taxes
11. Living trust with tax planning (B)
However, as shown here, Sue can receive income from Bob's trust, and she can withdraw principal from it if needed for her health, education, maintenance and support. So, although she cannot have complete control over Bob's trust, the assets can provide for Sue for as long as she lives.
There is another benefit you may be interested in, even if your estate isn't large enough to worry about estate taxes -- and that's control.
As soon as Bob dies, his trust becomes irrevocable. This means his instructions cannot be changed by anyone. So, even though he dies first, he keeps control over how his share of the estate is managed and distributed.
This could be important to Bob if he has children from a previous marriage. Or, he may want to make sure that, if Sue later remarries, his part of the estate doesn't end up with Sue's new husband. Also, the assets in his trust are valued and taxed at his death; any appreciation will not be included in Sue's estate.
This same kind of planning can also be done in a will, but you would not avoid probate or enjoy the other benefits of a revocable living trust.
Note: We used a $10 million estate for Bob and Sue because that is currently the amount of two exemptions. This planning works just as well if you have less than $10 million. If you are married, and you and your spouse both die in 2011 or 2012, this planning will allow you to leave up to $10 million estate tax-free to your loved ones, saving up to $1,750,000 in federal estate taxes.