Living Trust With No B Assets

[canonm]

What is the name of your state? California

I have a CA Living Trust just to avoid probate. It contains one asset---my personal residence. When one spouse passes beneficiary’s and trustees are the same for the A trust and B trust. I don’t want assets in the B trust. I think I have two options: A trust to contain the home and the B trust funded but contain no assets (documented). Does that work? If not, can I state in the trust that the A trust is to contain the house and the B trust to contain no assets—does that work? If not I will just leave the B trust unfunded and take my chances.

 

[Taxing Matters]

Using the terms A and B trust are not very illuminating. All that tells me is that there are two trusts here. It does not tell me why there are two trusts. What is the purpose you have in mind for these trusts — what is your goal?

The first trust (the A trust) is pretty easy to understand. You said the trust is there to avoid probate, and contains your home. (Might be good to put some of your other assets in there too. If nothing else, a bit of cash in the trust to help pay things like real estate taxes and insurance for the house.) I'm going to guess that the trust is a revocable trust, which is the most common form of trust used simply for avoiding probate. This kind of set up acts basically as a will substitute.

But I'm not seeing anything obvious for why you have a second one. You mention funding the second trust (the B trust) but then say it has no assets. When you fund a trust, you are transferring assets to it, so it is not possible to both fund a trust and also leave it without assets. A trust without assets is ineffective; it can't do anything. So if that second trust will never have assets then it was pointless to draw up the trust instrument in the first place.

By the way the terms A trust and B trust are generally used when setting up a credit shelter trust, which is an federal estate planning device for married couples that was used to take full advantage of each spouse’s unified credit. A change in the federal estate tax law about 10 years ago largely did away with the need for credit shelter trusts.

If you wish to provide some more detail about that second trust I may be able to provide you with some more helpful information to answer your questions.

 

[HRZ]

You cannot avoid probate if there are assets in your name alone and you " forgot " to get them properly titled ....you best have a will in any case to address anything you forgot to do.

 

[TrustUser]

one is not forced to have both the a and b trusts. that is just an option. although i would not look at current tax laws and assume that they are gonna be that way when you die. i think trump's latest tax cut largely got rid of the estate tax. that does not mean that the globalists would not put it back in, should they return to power.

 

[canonm]

Using the terms A and B trust are not very illuminating. All that tells me is that there are two trusts here. It does not tell me why there are two trusts. What is the purpose you have in mind for these trusts — what is your goal?

The first trust (the A trust) is pretty easy to understand. You said the trust is there to avoid probate, and contains your home. (Might be good to put some of your other assets in there too. If nothing else, a bit of cash in the trust to help pay things like real estate taxes and insurance for the house.) I'm going to guess that the trust is a revocable trust, which is the most common form of trust used simply for avoiding probate. This kind of set up acts basically as a will substitute.

But I'm not seeing anything obvious for why you have a second one. You mention funding the second trust (the B trust) but then say it has no assets. When you fund a trust, you are transferring assets to it, so it is not possible to both fund a trust and also leave it without assets. A trust without assets is ineffective; it can't do anything. So if that second trust will never have assets then it was pointless to draw up the trust instrument in the first place.

By the way the terms A trust and B trust are generally used when setting up a credit shelter trust, which is an federal estate planning device for married couples that was used to take full advantage of each spouse’s unified credit. A change in the federal estate tax law about 10 years ago largely did away with the need for credit shelter trusts.

If you wish to provide some more detail about that second trust I may be able to provide you with some more helpful information to answer your questions.

I have an existing simple living trust for myself and my wife whose purpose is to avoid probate. I only ;have one asset in the trust name which is our house. The trust says that when one of us dies I must create two trusts (A and B). One for the survivor A and one for the decedent B. And to put 1/2 the house in the A trust and 1/2 the house in the B trust. I don't want to put anything in the B trust because it adds complexity for the survivor. Both A and B trust have exactly the same beneficiaries and the same trustees. So one option is not to fund the B trust (and I realize there are risks to doing that). Another option is too do a simple amendment and state in the amendment that 100% of the house goes to the A trust and any other assets (of which there are none) go to the B trust. Will that be better then simply not funding the B trust?

 

[Taxing Matters]

one is not forced to have both the a and b trusts. that is just an option. although i would not look at current tax laws and assume that they are gonna be that way when you die. i think trump's latest tax cut largely got rid of the estate tax. that does not mean that the globalists would not put it back in, should they return to power.

There is today really no need for a credit shelter trust. The purpose of the credit shelter trust was to make maximum use of the unified credit while at the same time allowing the surviving spouse to make use of the assets as much as possible. I used to draft a number of these years ago. It was not an ideal solution to the problem. Approximately 10 years ago Congress saw that the tax law was causing taxpayers to have to spend the money to get lawyers to draft up these arrangements and then update them over time just to get a benefit that the Congress intended them to have in the first place. So it enacted a simple fix that allows the assets to pass to the suriving spouse and let the suriving spouse use the combined credits of both spouses at his/her death. Since that change, I have not had any need to draft a credit shelter trust for clients. For most, a basic revocable living trust for estate planning to avoid probate is all that is needed. That change I do not expect to ever be reversed while the estate and gift taxes at all resemble their current state. It had broad support of both parties and there is no good argument for doing away with it. It was simple, elegant solution to an unintended effect of the estate tax law.

All the Trump tax bill did for the estate tax was raise the limit on the credit from $5 million (before inflation adjustments) to $10 million (before inflation adjustments). That increase is temporary like most everything else in the Trump bill. Those changes last through 2025. On Jan 1, 2026, unless Congress acts, the law will revert back to what it was before the Trump changes.

And I have no clue why you think any of this is connected to “globalists.”

 

[Taxing Matters]

I have an existing simple living trust for myself and my wife whose purpose is to avoid probate. I only ;have one asset in the trust name which is our house. The trust says that when one of us dies I must create two trusts (A and B). One for the survivor A and one for the decedent B. And to put 1/2 the house in the A trust and 1/2 the house in the B trust.

Ok. That explains the set up, but doesn't explain what the intended purpose of splitting the trust into two trusts was. If this was done over 10 years ago then I suspect that if I read your current trust it would have the language for creating the credit shelter trust arrangement. A credit shelter trust only ever did any good if the married couple had enough assets to be over the unified credit amount, which right now is just over $10 million for each spouse and after 2025 will go back down to something over $5 million each. And today, even if you had assets over the unified credit amount a credit shelter trust is really not needed since the law allows you to get the same benefit by making a simple tax election. So it may be that you have an outdated trust arrangment and ought to have the current trust modified to remove the instructions to split the trust into two trusts at the first spouse's death.

 

[TrustUser]

as i already stated, tax laws can change. if the ab trust had been written correctly, there would be ABSOLUTELY NO REASON to update it over time.

i recall when the exemption credit was less than a million. it wasnt that long ago.

so i will reiterate - THINGS CAN CHANGE.

if you dont understand the globalist comment, then i wont try to explain it to you.

 

[TrustUser]

in case you dont have the length of experience that i do, here is a table for you

1997 $600,000
1998 $625,000
1999 $650,000
2000 $675,000
2001 $675,000
2002 $1,000,000
2003 $1,000,000
2004 $1,500,000
2005 $1,500,000
2006 $2,000,000
2007 $2,000,000
2008 $2,000,000
2009 $3,500,000
2010 $5,000,000
2011 $5,000,000
2012 $5,120,000
2013 $5,250,000
2014 $5,340,000
2015 $5,430,000
2016 $5,450,000
2017 $5,490,000

 

[Taxing Matters]

so i will reiterate - THINGS CAN CHANGE.

Yes. Things do change. Tax law changes all the time. I have practiced in tax law a long time and am very familiar with that. Probably more so than you, since so far as I know you do not practice tax law and thus don't deal with it on a daily basis as I do. But some parts of tax law do not change much at all over time, while others change frequently. I know pretty well those things that tend to change a lot and those that do not change much if at all over time. For example, wages have always been taxable income since the modern income tax law started in 1913. I don't expect that to change for as long as we have an income tax. Do you? So the fact that some things change frequently does not mean that all things are subject to frequent changes. I've explained why I think that the change to the Code allowing for an election to do what the credit shelter trust did is unlikely to change while the estate tax remains pretty much in its current state, and you've not said anything that would change my mind on that.

if you dont understand the globalist comment, then i wont try to explain it to you.

Meaning you don’t have an explanation you can give in a few sentences.

I have seen the conspiracy theories that says a group of “globalists” is conspiring to take over the world and I’ll just say that I don’t give such theories much credence.

 

[TrustUser]

no, i dont expect to see where we abolish the income tax. are you not aware of the volatility of the estate tax ? it used to be a running joke on this forum and others, when anyone would ask a question about estate tax. the typical reply was "this is what it is today. ask me tomorrow what is tomorrow".

if you had asked me if i think the estate tax will change in our lifetimes, i would have replied - absolutely, if the globalists ever return to power. in fact, an almost certainty. history would be on my side. the estate tax is one of the easiest ones to get away with, because it does not affect the individual while he is living. and yet it is a huge source of revenue.

personally i have a trust set up for my beneficiaries, so it does not carry all the comments about the grantor. and then a separate trust for me. the beneficiary of this trust is my beneficiary trust.

i am not really suggesting an ab trust, one way or the other. but i dont find it that much more complicated. and if one does not have an exemption to worry about, then fine. with a married couple, i actually like the idea of both an a and b trust. even if there is no tax reasons for it. placing real estate in one of the trusts, and bank accounts, etc. in the other trust can be beneficial - in that assets that carry law suit potential are separate from assets that do not.

 

[Taxing Matters]

no, i dont expect to see where we abolish the income tax. are you not aware of the volatility of the estate tax ? it used to be a running joke on this forum and others, when anyone would ask a question about estate tax. the typical reply was "this is what it is today. ask me tomorrow what is tomorrow".

As a tax lawyer I am more familiar than most people with the details of the tax code, including the estate and gift taxes. Most of the provisions of the estate and gift tax have remained unchanged for decades. In fact the substance of the estate and gift taxes have changed less than the income tax over the last 50 years. What has changed a lot with the estate tax are two things: (1) the tax rates and (2) the size of the unified credit. Much as with income tax, where the rates are tinkered with quite frequently.

if you had asked me if i think the estate tax will change in our lifetimes, i would have replied - absolutely, if the globalists ever return to power. in fact, an almost certainty. history would be on my side. the estate tax is one of the easiest ones to get away with, because it does not affect the individual while he is living. and yet it is a huge source of revenue.

I agree with you that the estate tax would be much easier to get rid of than the income, but the reason why is that the estate tax is not a huge source of revenue. In 2016, the last year for which statistics are available, the IRS reported that the federal income tax on indivduals, trusts and estates brought in the most revenue, $1.446 trillion, which was 49.8% of the total revenue collected. Employment taxes (Social Security, Medicare, Unemployment, and railroad retirement) brought in $1.070 trillion, 36.8% of total revenue. Next was corporate income tax, which brought in just $294.3 billion, which was 10.01% of total revenue. Excise taxes, including taxes on alcohol, tobacco, gasoline, etc., brought in $74.5 billion, which was 2.6% of revenue, and estate and gift taxes were dead last, bringing in just $21.3 billion, which was just 0.7% of total revenue.

And it may well get eliminated at some point. After all, it brings in very little of the total revenue anyway. The main reason they don't get rid of it is the politics of it: making it look like the rich would be left off the hook for a ton of tax. No matter that it doesn't really bring in much. Anyway, I took potential outright repeal into account when I said that I expect the unified credit election will remain as long as the estate tax remains in anything like its present form.

i am not really suggesting an ab trust, one way or the other. but i dont find it that much more complicated. and if one does not have an exemption to worry about, then fine. with a married couple, i actually like the idea of both an a and b trust. even if there is no tax reasons for it.

If you use the terms a and b trust to refer generically to any arrangement using two trusts, then certainly there are situations in which the use of two trusts may be useful. All I am saying is that if the trusts were set up with the goal of a credit shelter trust, then that arrangement wouldn't be needed today. And without knowing the details of the OP's situation and his/her goals, there is no way I could recommend what kind of estate plan would be best to use. I would guess you would agree with that. I would guess that you would also agree that a trust that has no assets is pointless, and that's what the OP asked about: keeping the b trust but not funding it.

 

[justalayman]

You cannot avoid probate if there are assets in your name alone and you " forgot " to get them properly titled ....you best have a will in any case to address anything you forgot to do.

Actually in California, that isn’t always true. For the life of me I cannot think of the name off the top of my head but probable intent allows assets to be placed into a trust after death of the testator.

 

[TrustUser]

As a tax lawyer I am more familiar than most people with the details of the tax code, including the estate and gift taxes. Most of the provisions of the estate and gift tax have remained unchanged for decades. In fact the substance of the estate and gift taxes have changed less than the income tax over the last 50 years. What has changed a lot with the estate tax are two things: (1) the tax rates and (2) the size of the unified credit. Much as with income tax, where the rates are tinkered with quite frequently.



I agree with you that the estate tax would be much easier to get rid of than the income, but the reason why is that the estate tax is not a huge source of revenue. In 2016, the last year for which statistics are available, the IRS reported that the federal income tax on indivduals, trusts and estates brought in the most revenue, $1.446 trillion, which was 49.8% of the total revenue collected. Employment taxes (Social Security, Medicare, Unemployment, and railroad retirement) brought in $1.070 trillion, 36.8% of total revenue. Next was corporate income tax, which brought in just $294.3 billion, which was 10.01% of total revenue. Excise taxes, including taxes on alcohol, tobacco, gasoline, etc., brought in $74.5 billion, which was 2.6% of revenue, and estate and gift taxes were dead last, bringing in just $21.3 billion, which was just 0.7% of total revenue.

And it may well get eliminated at some point. After all, it brings in very little of the total revenue anyway. The main reason they don't get rid of it is the politics of it: making it look like the rich would be left off the hook for a ton of tax. No matter that it doesn't really bring in much. Anyway, I took potential outright repeal into account when I said that I expect the unified credit election will remain as long as the estate tax remains in anything like its present form.



If you use the terms a and b trust to refer generically to any arrangement using two trusts, then certainly there are situations in which the use of two trusts may be useful. All I am saying is that if the trusts were set up with the goal of a credit shelter trust, then that arrangement wouldn't be needed today. And without knowing the details of the OP's situation and his/her goals, there is no way I could recommend what kind of estate plan would be best to use. I would guess you would agree with that. I would guess that you would also agree that a trust that has no assets is pointless, and that's what the OP asked about: keeping the b trust but not funding it.

okay, sounds good. i am happy to stand corrected on the estate tax revenue. i would have thought it would be considerably higher. at least when the unified credit was 600,000. i can see with it being 5 million, that it would not be that high, because the number of people being taxed would be somewhat miniscule.

with regards to the credit shelter part of it, i think there is a much better chance of it coming back into play. if you are a young couple, with possibly decades to live, then i think there is a decent chance of having it play a role in their lives.

it isnt the end of the world if they dont have one now. it isnt like they cant do another one later. but that does entail re-titling all their assets. and if that includes real estate, it probably means paying someone else to create a deed to do so.

i do my own trusts, and have a template for an a/b trust. so if i was married, i would do an a/b trust for me and her. but i totally understand a decision today not to have one.

one thing i learned early on is i did not want to saddle my beneficiaries with a trust document in which 1/3 of it was completely useless stuff talking about how to take care of the grantors. an a/b trust has even more stuff in it that is useless to the beneficiaries.

 

[TrustUser]

Actually in California, that isn’t always true. For the life of me I cannot think of the name off the top of my head but probable intent allows assets to be placed into a trust after death of the testator.

hi just, i live here in the welfare state. i never heard of that, but i dont doubt that you are correct. if you find the name of it, please post it. i would be interested in reading about it. not sure i like that idea, though.