Legal Question in Wills and Trusts in California

Generally, an AB Trust is designed to maximize the federally allowed tax exemption. Following the first settlor's death, the Trustee is supposed to divide the estate if the estate is worth more than the federally exempted portion, currently $5 million dollars. If the estate is worth less, the Trustee typically does nothing or declares the entire estate in the Survivor's Trust. There are, of course, some exceptions to this general rule.

If you have questions regarding the administration of a trust, you should schedule an appointment with a local estate planning attorney for advice. That attorney will have a better understanding of the entire trust after have read it.

It is likely that the assets to need to be split and that each trust should have its own assets.

In funding, you have to start with identifying all the assets and their fair market value as of the date of death of your mom.

You also have to identify which assets are your Mom's, which are your Step Father's and which are community property.

A Marital Deduction is available if the assets of your Mom's (both her 1/2 of the community property and her separate property exceeds the allowable equivalent exemption amount, which for last year was $5,250,000. If the amount of the property does not exceed that amount, which is taxable (but the tax will be zero), then all those assets will go into the Bypass Trust or Credit Shelter Trust (sometimes called the "A" Trust).

Your Step Father's share of the community property and his separate property will go into the Survivor's Trust (sometimes called the "B" Trust).

Only the Survivor's Trust is revocable and can be amended or changed.

The Decedent's Trust (whether it is called a Bypass Trust, Credit Shelter Trust or the "A" Trust is irrevocable.

I suggest it is best tor retain an expert (attorney and accountant) to assist in dealing with the Administration of the living trust and complete the work that the Trustee (your Step Father) is required to do.

It is to your Step Father's advantage to retain the expert... there are tax advantages that can be obtained as well as identifying the step up in basis for the assets which will reduce any taxes on sales in the future.