Should You Establish Multiple Trusts for Your Estate?

Recently, a couple attended an estate planning seminar in Scottsdale. The Arizona attorney presenting the seminar talked to them after the seminar and recommended a revocable living trust for their personal residence and other assets, and an irrevocable trust for their insurance policies. The husband thinks that the attorney is trying to make more money by charging for two trusts when one trust would be sufficient. Are two trusts necessary?

A revocable living trust is designed to avoid probate and permit the owner of the asset to retain control of the asset, e.g., the asset at any time can be transferred back from the trust to the owner. In addition, the tax status of the asset generally remains the same. For example, if a personal residence is transferred to a revocable living trust the $250,000 single / $500,000 family capital gain exemptions on the sale of a principal residence are still available.

On the other hand, the purpose of an irrevocable trust is primarily to avoid estate taxes on substantial assets such as life insurance policies. In their estate planning situation they may need both trusts, but if theydo not have confidence in this attorney you should seek a second opinion from another attorney or a financial planner.

Note: At least until the end of 2012 when estate tax provisions will be reviewed by Congress, the current $5,000,000 single / $10,000,000 couple, estate tax exemptions mean that estate tax planning is necessary for less than 1% of American taxpayers.