1 million, then you don’t need trust law firm revocable living trust. That’s like saying you don’t need to change the oil in your car because the gas tank is full.
One thing has nothing to do with the other. 1 million number, or any number for that matter, refers to the asset level at which there will be estate taxes. It has nothing to do with probate. A colleague of mine, Sabrina Winters, recently called to ask about putting a married couple’s real estate into a joint revocable living trust. She felt pretty certain that the primary residence and other real estate should be retitled in the name of the trust to avoid probate, but she put the question to a list serv for estate planning attorneys in our state. Tenancy by the Entirety also has special creditor protection so if either the husband or wife is sued then the property cannot be sold to pay for the judgment because the other spouse has their interest in the property. And I’m sure it sounds logical to most estate planning attorneys.
But there often has to be a balancing of interests in choosing estate planning strategies, and here the balance only rarely comes out in favor of keeping the real estate out of the trust. It avoids the probate process on the first death AND the second death. There is no chance that if both spouses die at the same time that the real estate will have to go into probate. When the house is placed into the joint revocable living trust and one spouse dies, it will typically be divided equally between a subtrust for the surviving spouse and a credit shelter trust that uses the deceased spouse’s estate tax credits.
If real estate just went to the surviving spouse automatically outside of probate, then it would not be part of the assets placed into this credit shelter trust and there may be some unnecessary taxes when the survivor passes on. Once that half of the house is in the credit shelter trust, it is protected not just from lawsuits but also from bankruptcy, Medicaid spend down, and creditors. And not just for the surviving spouse, but also potentially for the beneficiaries after the surviving spouse’s death. Once that half of the house is placed into the credit shelter trust, all growth on that half of the house is also protected from future estate taxes.
100,000 of it goes into the credit shelter trust. 300,000 for that half of the house. The spouse writes out a disclaimer refusing to accept that half of the house. OK, then what happens to that half of the house? And so we get to the balancing of interests. On one side, keeping the house titled in tenancy by the entirety allows for lawsuit protection if one spouse is sued and the other is not.
No added protection for bankruptcy, no added protection from Medicaid spend down, and no protection from probate when the second spouse dies. In fact, there is no protection from probate even when the first spouse dies if they need to have half the house go into the credit shelter trust. On the other hand in putting the real estate into the trust we have the benefits of avoiding probate for real estate upon both spouses’ deaths, and for the half going into the credit shelter trust, protection from lawsuits, Medicaid spend down, and creditors for the surviving spouse and possibly beneficiaries as well. Then it also avoids unnecessary estate taxes on half the real estate AND its growth when the surviving spouse passes on. In short, on the one hand we have all of the downsides of keeping the real estate outside the trust for the teeny tiny chance that lawsuit protection may be needed. Seems like a no-brainer to me.
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