We recently had a discussion on the Live ListServ on a newer component of the LWP-CCS, the client centered drafting software created by Lawyers with Purpose. For clients that may not have a huge amount of assets and would be highly unlikely to ever really worry about the estate tax and they don’t want the added “confusion” of having a lot of language regarding estate tax in their documents, there is now an option to create a “common trust” for married couples.
A common trust gives asset protection as does the credit shelter / family trust. The same questions are asked as they are in the credit shelter / family trust option, but it rips out the tax language. It is assumed that the client does not need and won’t ever have a need for the estate tax provisions.
The common trust is funded after the death of the first spouse. If husband and wife have separate trusts, then the common trust is funded by 100% of the deceased spouse’s trust. But if there is a joint trust, then the trust is funded by 50% of the joint assets in the trust and all of the assets on the deceased spouse’s separate assets.
How does this look? Let’s say husband and wife with a $500,000 joint trust. In our scenario, the husband puts in $300,000, the wife puts in $100,000 and they jointly contributed $100,000. Assume first that the husband dies first. The terms of the trust would then put $300,000 of the husband’s assets in the common trust. Then half of the $100,000 that was jointly contributed would be added, and none of the wife’s contribution would be added to the common trust. So a total of $350,000 would be put into the common trust.
Now assume the wife died first. In that case, the $100,000 that she separately contributed would be added to the common trust. Also half of the $100,000 that was jointly contributed would go to the common trust. So if the wife died first, $150,000 total would be contributed to the common trust.
The live listserv is an incredible valuable opportunity to get your burning legal/technical, marketing, and any other practice related questions answered in real time. Don’t miss out!
David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center
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