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Do I need an A/B trust?

By December 29, 2012Estate Planning

I had an interesting conversation today with one of our clients. The sole purpose of them coming in to see me was to discuss whether they needed to have an A/B trust in place, which is what we had created for them.  I asked what prompted them to ask that question and the response back to me was that they had attended a seminar in Arrowhead where an estate planning attorney here in town had advised them that they did not need an A/B trust any longer and that they needed to restate their whole trust. I asked what his reasons were for them not needing an A/B trust any longer and they informed me that this attorney had said there was a new and better way of doing things, making the A/B trust obsolete.

Often times at my seminars I tell the audience there are bad mechanics, bad doctors, and bad dentists, and then I ask them, in a half sarcastic tone, are there any bad attorneys? They usually all start laughing, knowing full well there are bad attorneys. Unfortunately, there is some bad advice being given out there, and telling a client that they do not need an A/B trust can be bad advice.

So why would a client need an A/B trust? There are many reasons, but the one that seems to be focused on most is to avoid or minimize paying an estate tax. The argument can be made that since there is a $5 million estate tax exemption, there is no need to have an A/B trust if an estate does not exceed this amount. This is being shortsighted in my opinion. The estate tax exemption amount is set to drop to a $1 million exemption in 2013, unless congress does something this year. Realize that this year is an election year and congress hates to make hard decisions in an election year.  The question may be asked why do I need an A/B trust if they keep the exemption at $5 million in 2013 and my estate is less then $5 million? If the sole reason for doing an A/B trust was for tax reasons then there may be an argument to not have an A/B trust, but the reality of the situation is there are other reasons to do an A/B trust that have nothing to do with taxes.

One of the reasons why an A/B trust is so good is because we can protect up to half of the estate value in the B trust, after one spouse dies, from future creditors of the surviving spouse.  This seems like a pretty important and relevant goal considering that approximately 1 in 12 Americans are involved in some type of litigation.

Another important reason for doing the A/B trust is to protect the decedent’s heirs in the event the surviving spouse gets remarried. If this happens then we can ensure that the estate of the decedent is passed on to his/her heirs instead of the surviving spouse’s new spouse. We can also protect up to half of the estate in case the surviving spouse gets divorced from the new spouse. This can be a very significant protection to both the surviving spouse and the deceased spouse’s heirs considering that 50% of all marriages end in divorce.

Finally, one of the other reasons we recommend doing the A/B trust is that we can shield at least half of the estate from long term care spend down if the surviving spouse has to go into long term care and needs to try and qualify for some type of public benefit to help pay for their care. Considering that the average cost for long term care in Maricopa County is around $6,481 a month, this can amount to substantial savings for both the surviving spouse and the descendant’s of both spouses.

It is crucial that you meet with an attorney that knows what they are doing when it comes to estate planning.  Unfortunately there are many people out there that profess to know how to do estate planning and really have no clue as to what they are doing.  The people that end up paying for that bad advice are the general public.  The attorneys at the law firm of Morris Hall have been doing estate planning for over 40 years in Arizona.  We belong to a nationally recognized institution; the American Academy of Estate Planning Attorneys. We have given numerous seminars to both the private and public sector on various estate planning topics.  If you or a friend ever go to another estate planning seminar and have questions about what was presented please give us a call.  We would be more then happy to sit down with you for a free consultation to set the record straight. Call us today at 888.222.1328.

Contributed by MH Scottsdale and Arrowhead Estate Planning Attorney and Partner David T. Eastman

Morris Hall Can Protect You in Today’s Litigious Society:

We live in a litigious society, where over 1 million lawsuits are filed every year in America alone.  Financial predators are looking for ways to take funds from others and often use litigation as their means to do so.  At Morris Hall we provide your assets and your loved ones with important protections that can prevent financial predators from taking advantage of you.  We do this through proper and current estate planning techniques.  With an MH living trust, we can also protect your property, assets and loved ones from probate, estate taxes, gift taxes, creditors, Medicaid spend-down, conservatorship or guardianship proceedings, ex-spouses and more.  A living trust also keeps your asset and beneficiary information private and secure to avoid giving financial predators information to use against you and your family.  Without a living trust, this information is made public.  For those living in Arizona, we serve the areas of Phoenix, Mesa, Gilbert, Fountain Hills, Carefree, Scottsdale, Prescott, Flagstaff, Sedona, Tucson, Oro Valley, Arrowhead and Tempe.  In New Mexico we serve the areas of Albuquerque, Santa Fe, Las Cruces, Rio Rancho, White Rock, Alamogordo, Truth or Consequences and more.  Contact us today at 888.222.1328 to schedule an appointment with an attorney in your area!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.

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