Utilizing a Revocable Living Trust to Minimize Estate Taxes

What is a trust?

A trust is a written agreement between the person(s) who creates the trust and the person(s) who administers the trust as to how any property owned by the trust may be used.  Basically, it is a written set of rules and instructions guiding how property owned by the trust is to be handled.  The person who creates the trust is called one of the following: “Grantor,” “Trustor” or “Settlor.”  Two people may create a trust together and then both would be Grantors.  The person who administers the property in the trust according to the rules set down by the Grantor is called the “Trustee.”  There may be more than one trustee.  The person who benefits from / gets to use any property in the trust is called the “beneficiary.”  There may be multiple beneficiaries of a trust.  Additionally, a trust may be revocable or irrevocable depending on the terms of the agreement.

What is a revocable living trust?

A revocable living trust is a trust, which, according to the rules of the trust, the Grantor retains the right to change the terms of the trust at any time.  This ability to change the trust makes the trust revocable.  In addition, the Grantor can demand the property in the trust back at any time.  Generally, when someone creates a revocable living trust the Grantor is also the Trustee and beneficiary during the Grantor’s lifetime.

Revocable living trusts are created for several common reasons, such as avoiding probate and minimizing estate taxes. 

What is an estate tax?

An estate tax is a tax imposed by the Commonwealth of Massachusetts and by the federal government on the value of any property owned by a person at death.  The property subject to tax is known as the taxable estate.   The Commonwealth of Massachusetts exempts the first $1,000,000 of property owned by a person at his or her death before imposing the estate tax.  The federal government, in 2021, exempts the first $11,700,000 [BW1] (when adjusted for inflation) of property owned by a person at his or her death before imposing the estate tax. 

What is the estate tax rate?

Rate changes depending on the size of the estate.  The State estate tax works out to be approximately 10% of the estate above the $1,000,000 exemption.  The Federal rate is capped at approximately 40% in 2021. 

How does a revocable living trust help minimize estate taxes?

If the trust is drafted properly then at the death of the first Grantor (for a joint trust) or the Grantor (for a single person trust) the trust directs that the property in the trust be divided into two segments.  These two segments are two new trusts.  One of these new trusts is called the marital trust and the other is called the family trust.  Other common names for a family trust are the bypass trust or credit shelter trust.  Property that is allocated to the marital trust is included in the surviving spouse’s taxable estate at the surviving spouse’s death.  Property allocated to the family trust is not included in the surviving spouse’s taxable estate.  The result is that the surviving spouse has a much smaller taxable estate because only the property in the marital trust is taxable.

Here is an illustration: 

Mr. & Mrs. Jones have property worth $1,750,000.  In traditional estate planning, Mr. & Mrs.  Jones would leave all of their property to each other and then at the second death, to their children.  Presume Mr. Jones dies first.  Under this illustration, there is no estate tax due on Mr. Jones’ death because he left all his property to his wife and gifts to spouses are not subject to estate tax.  However, upon Mrs. Jones’ death, all $1,750,000 that she owns is subject to estate tax.  Mrs. Jones’ has a $1,000,000 Massachusetts estate tax exemption, thus she owns $750,000 worth of property above the Massachusetts estate tax exemption amount.  Thus, Mrs. Jones’ estate would owe approximately $80,000 in Massachusetts estate tax.

Compare the illustration above with this one:  Mr. & Mrs. Jones create a joint revocable living trust and place all of their property in the trust. Mr. Jones dies first.  The trust then directs that up to $1,000,000 be placed into a family trust for the benefit of Mrs. Jones.  $800,000 is placed in the family trust.  The remaining $950,000 is then placed in a marital trust.   Mrs. Jones is the sole beneficiary of both trusts during her lifetime.  Mrs. Jones dies several years later and the martial trust is still worth $950,000.  No estate tax is due at Mrs. Jones’ death. 

The use of a joint revocable living trust has saved the Jones’ family approximately $80,000.

Common Questions regarding Revocable Living Trusts:

  1. Does a revocable living trust protect property against lawsuits or nursing home liens?


  1. Can I sell my home if it is in a revocable living trust?

Yes, you can do whatever you like with the property in the revocable living trust.

  1. Can I take money out of my bank account if it is in a revocable living trust?


  1. Does a revocable living trust avoid probate?

Yes, as long as the property is owned by the trust. 

  1. Can I be the trustee of a living trust that I create?

Yes, also, after the death of one spouse of a joint revocable living trust, the surviving spouse may remain the sole trustee of the trust.

Key questions to ask and choices to be made when designing a revocable living trust:

  1. Do the Grantors have a taxable estate?
  1. Do the Grantors want the surviving spouse to be able to change the ultimate beneficiaries of the trust?  (a) not at all, (b) yes, but only among family members, (c) yes, but only among family members and charities or (d) yes, to anyone
  1. Do the Grantors want to include a provision that mandates that the surviving spouse may not remain the sole trustee if the surviving spouse remarries without a valid prenuptial agreement? If so, who becomes the co- trustee in that situation?
  1. At the death of the surviving Grantor is the property in the trust distributed outright free of trust to an asset protection trust or to a special needs trust?
  1. If the property is to be allocated to an asset protection trust may the beneficiary be a co-trustee of such trust?  If so, at what age?  Who may be the co-trustee with the beneficiary?  Can the beneficiary change the co-trustee? 

© Surprenant & Beneski, P.C. 2021

©Surprenant & Beneski, P.C. 35 Arnold Street, New Bedford, MA 02740, 336 South Street,   Hyannis MA 02601 and 45 Bristol Drive, Easton MA 02375.  This article is for illustration purposes only.  This handout does not constitute legal advice.  There is no attorney/client relationship created with Surprenant & Beneski, P.C. by this article.  DO NOT make decisions based upon information in this handout.  Every family is unique and legal advice can only be given after an individual consultation with an elder law attorney.  Any decisions made without proper legal advice may cause significant legal and financial problems.