What Happens To A Living Trust When One Spouse Dies?

One reason for a living trust for a married couple is the opportunity to pass on their estates to their children in the most tax-efficient manner.  When the first spouse dies, the surviving spouse is allowed to make use of all available tax benefits. This can be the difference between leaving your children the wealth you have accumulated and leaving them with barely enough to pay for funeral expenses. Can’t I just leave everything to my spouse? Typically, when one spouse dies, they leave all of their assets to the surviving spouse.  Although this seems logical, it actually prevents the use of the deceased spouse’s estate tax exemption.  Currently, the estate tax exemption is $5.34 million  (it will increase to $5.43 million in 2015), which means that much of your estate can be transferred tax free.  How is the tax exemption lost?  Because the assets are transferred into the name of the surviving spouse, and when that spouse later dies, the only exemption available is his o


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