Special Alert to Existing Clients and Potential Clients
YOUR LIVING TRUST MAY HAVE OUT OF DATE PROVISIONS AND NEED TO BE REVISED AS SOON AS POSSIBLE.
A once-popular estate planning tool, called a “Credit Shelter Trust” or – also called a “Bypass Trust” or a “Family Trust” — may now cost families more than it saves. If your estate plan includes one, it could be doing more harm than good, and you need to consider updating your documents as soon as possible.
Attorneys for many years had a method to double the exemption to $1,200,000, saving a married couple up to $300,000 in Federal Estate Taxes, plus additional savings at the state level. The idea was that when the first spouse died, that spouse’s Will did NOT leave all the assets outright to the surviving spouse. Instead, part of the estate was placed into a Bypass Trust — hey trust in which the surviving spouse maintained an interest, but it was a limited interest. The transfer to the Bypass Trust was not a taxable event because of the unlimited marital deduction between spouses, which allows an unlimited amount to be transferred to a spouse, or to a trust for the benefit of the spouse, so long as that spouse is an American citizen, without incurring any estate tax. On the death of the second spouse, the funds in the Bypass Trust could then pass free of estate taxes so long as that amount was less than $600,000, because the surviving spouse was entitled to an additional $600,000 exemption upon death.
Even though the tax motive for the Credit Shelter Trust is gone, for many clients with all their documents, the Trust still exists as an outdated ticking time bomb ready to go off upon the death of the first spouse. For most married couples, it is unnecessary, burdensome, and expensive. This is why many couples need to modify their estate planning documents to eliminate the Credit Shelter Trust, because it won’t go away on its own. If you leave it in place, instead of saving money, it will add time, expense, and burden to the administration of your estates.
If any of these changes have happened to you or if you haven’t updated your estate plan in the last few years, the time is now.
Even if no changes are necessary, you should ideally annually sign updated Powers of Attorney. Some financial institutions won’t accept a Power of Attorney more than a year old. Similarly, the older an Advance Medical Directive is, the less likely it is that it will be honored by a doctor or hospital.
If you’re not already a member, ask about The Farr Law Firm’s Lifetime Protection Program, which ensures that your documents are properly reviewed and updated as needed, so that they will have the proper effect under the law. If members of your family have not done Incapacity Planning or Estate Planning, or if a loved one is beginning to need more care than you can handle, please contact us as soon as possible to make an appointment for a no-cost initial consultation: