The most commonly used trust is the revocable living trust. In essence, a revocable living Trust is a modern replacement for will. Unlike a will, however, a revocable living trust provides legal authority to carry out its instructions. In other words, upon the Grantor’s death, the successor trustee can carry out the Grantor’s instructions without going through the probate court system. For example, the successor trustee of the Trust can simply take copy of the trust and the death certificate to a bank account to become a signer on the account and make distributions to the beneficiaries. The successor trustee has a fiduciary obligation to follow their instructions contained in the trust agreement, or else the beneficiaries can sue the successor trustee for breach of duty.
A revocable living trust can also reduce estate tax for married couples. The estate tax exemption prevents estates of a certain size from having to pay estate tax. That exemption is $1 million. This exemption applies per person. However, without a properly structured trust, a married couple can waste 1 of their 2 exemptions. The reason that may happen is this: when one spouse dies, the deceased spouse can transfer an unlimited amount of property to the surviving spouse without any estate tax being due and without using their estate tax exemption. So without a trust, all the property transfers to the surviving spouse and the exemption is wasted. With a trust (commonly referred to as an A-B trust), the estate tax exemption is protected by the “B” portion of the trust, and the family will benefit from both exemptions.