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Sweetheart Trusts: A Valuable Estate Planning Tool

Estate planning
Not many people want to ponder their own death. Unfortunately, failing to make a plan for the disbursement of your assets following your death could leave your loved ones facing financial and legal trouble.
Estate planning is essential for anyone who wants to ensure that their heirs are provided for in the event of their death. There are several different tools available when it comes to structuring your estate. Revocable living trusts are becoming increasingly more popular because these types of estates allow your heirs to avoid the probate process and help to make the transfer of assets a little easier.
A sweetheart trust is a special kind of revocable living trust that you can utilize to help streamline the estate planning process.

Definition of a Sweetheart Trust

In order to effectively utilize a sweetheart trust to manage your estate, you need to know what these are. A sweetheart trust gets its name from the increased level of control afforded to the surviving spouse.
While both you and your spouse are alive, you each have the option to make changes to your portion of the trust. Mutual agreement allows you to amend the trust or dissolve it before death. Once you or your spouse passes away, control over the trust reverts solely to the surviving spouse.
Assets contained within the trust remain in that same revocable living trust for the life span of the surviving spouse and are then transferred to the appropriate beneficiaries upon the surviving spouse's death.

Benefits of a Sweetheart Trust

Once you understand how a sweetheart trust differs from other types of revocable living trusts, you can begin to see the benefits that you will enjoy when using a sweetheart trust to plan your estate. The structure of a sweetheart trust is simple and straightforward, making the trust easy to understand and oversee.
Like all revocable living trusts, a sweetheart trust allows you to keep your estate out of probate following your death. Your spouse will not be required to draft complex paperwork allowing for the division of the trust after your death, and no separate income tax return will need to be filed since the structure of the sweetheart trust remains intact as long as you or your spouse are alive.
The simplicity of a sweetheart trust makes these types of revocable living trusts a great option for individuals who want to enjoy the same benefits associated with joint ownership of real property while avoiding the complications of probate court.

Sweetheart Trusts and Taxes

The desire to avoid hefty estate taxes has been one of the factors driving people to use trusts as part of the estate planning process.
While complex trust structures might have been required to minimize tax burdens in the past, recent changes to estate tax laws have made the simple structure of a sweetheart trust more appealing. The new unified tax credit amount for year 2018 through year 2025 is over $11 million, meaning that you can pass on just over $11 million in cash and assets without incurring estate taxes.
Portability provisions also have been introduced, allowing married couples to double their unified credit amount. This provision gives you and your spouse the ability to leave a significant amount of money in a simple sweetheart trust without worrying about the estate taxes that will have to be paid.
There are many estate planning tools available to individuals looking to avoid probate and plan for the dispersal of their assets. Contact Kisner Law Firm for a consultation to discuss your unique situation. An experienced attorney will be able to help you decide if a sweetheart trust is equipped to meet your estate planning goals.