On money

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times,
published September 9, 2001

Setting up a living trust can accomplish many things

Q. How much money do you need to have a living trust?

A. There is no magic number. The question is not just how much money you have, but how complicated your life is. A trust can be used to accomplish many different things depending on how it is written. The "living" part means that you create the trust during your lifetime rather than at your death. Most living trusts are revocable, which means they can be changed any time while the creator is alive.

Not everyone needs a trust, but here are six good reasons to create one:

1. You are married and together you and your spouse have assets worth more than the estate tax exemption ($675,000 this year). A trust can allow you both to take advantage of the exemption, doubling the total.

2. You want to provide for your spouse while making sure that the balance of your estate goes to your children. (Commonly used in second marriages.)

3. You want to leave your assets to your spouse or children but you want to appoint someone else to manage them.

4. You want to leave your assets to a spouse who is not a U.S. citizen.

5. You own real estate in a state other than the one you claim as your residence, complicating the probate process.

6. Your business or investment interests are substantial or complex enough that you want to set up a way to manage them in the event of your disability or death.

If you find yourself in any one of these situations, I recommend talking with a lawyer who handles trusts and estates.

But what if none of the above applies to you? If you have a modest, uncomplicated estate, a will and durable power of attorney may suffice for management of your finances.

Remember that a trust applies only to those assets titled in the trust's name while a will only applies to assets that do not pass to a new owner through some other vehicle, such as a trust, a joint account or a retirement account with a named beneficiary. If your assets are all titled jointly with your spouse or children or in accounts with beneficiaries, neither a will nor a trust will determine who gets what.

Q. Our son died last year and left us his estate, worth about $200,000. The IRS sent a letter along with the tax ID number for the estate saying we must file a Form 1041, an income tax return for estates and trusts. Our lawyer said we would not have to file any estate tax return. Do you agree that we do not have to file the Form 1041?

Also, the IRS sent us a $300 rebate check on behalf of our son. We did have an accountant file an income tax return to account for his income up until death. If I understand correctly, these rebates are considered an adjustment based on returns to be filed for the year 2001. I'm a little confused because I do not see the need to file any tax forms in my son's name for 2001. The way I see it, this is a gift from the government and no further action is required on my part. Do you agree? By the way, the check already has been cashed.

A. I am sorry about your son's death. It sounds as though you have done a good job handling your responsibilities. The only problem is that you have confused income taxes and estate taxes. Your lawyer correctly advised you that the estate is too small to be subject to estate taxes. However, if the estate had income of $600 or more during the year, you still would need to file Form 1041. It probably would be a good idea to consult an accountant familiar with the form.

Your son's estate is entitled to the $300 from the IRS based on his 2000 return even though you will not file a return for him for 2001. You do not have to give back the $300 or pay any taxes on it.

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Read more about living trusts and other legal topics in Nolo's Legal Encyclopedia (www.nolo.com/encyclopedia/index.html).

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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