Simplify Your Estate Planning Trust

March 2019

 

The Tax Cuts and Jobs Act of 2017 raised the federal gift and estate tax exemption substantially. The Unified Gift and Estate Tax Exemption is now $11,400,000.00 per person for 2019 (for a total of $22,800,000.00 when combined for a married couple). This means that most revocable trusts accomplished before 2018 are antiquated and should be revised.

            Pre-2018 Trust. Trusts before 2018 (1) typically provide for the separation of the initial trust’s assets and liabilities upon the first spouse to pass. Two trusts, sometimes commonly known as A-B trusts or Bypass and Survivor trusts are formed, one for the benefit of the surviving spouse and the other, an irrevocable trust for the benefit of the other beneficiaries. These two trusts then require separate trust administrations, tax returns, accountings, as well as accounting and legal fees.

     Revocable Trust. The great majority of trusts written before the Tax Cuts Act for married couples are revocable trusts, sometimes referred to family or living trusts. This means that the trusts can be revoked, amended, restated or simply put, changed…before the death of the first spouse.

After the passing of the first spouse, all or a portion of the previous revocable trust becomes irrevocable. While the surviving spouse usually has full access to the income and principal of both the Survivor and Bypass trusts, the trust provisions require two trusts, an additional tax return, separate bank and brokerage accounts, accounting and legal fees, and other expenses.

     Simplification. While you and your spouse are still alive and your joint trust is revocable, it is easy to avoid all of the duplication required under an antiquated trust under today’s tax laws to take advantage of the beneficial gift and estate tax exemption of $22,800,000.00. Simply, it means that you restate your trust to a single trust if your estate is under the thresholds indicated. If you believe that your estate would go over the maximum exemption, provisions can be put in the single trust so that the surviving spouse can separate out a portion of it into a bypass trust. The legal word is “disclaim” a portion of the estate from the survivors trust. So simple, so easy. It is unfortunate that we see surviving spouses approaching our Firm with antiquated trusts, which require dual administrations and unnecessary fees and expenses.

     Caveat. If your estate exceeds or will exceed the gift and estate exemption amount, then your trust may be just fine, but it should be reviewed by an attorney to be compliant with existing law. For estates in excess of the exemption amount, there are regular, legal tax avoidance approaches such as family limited partnerships, irrevocable life insurance trusts, charitable remainder trusts, etc.

     Summary. Your estate planning should be current. With the fast pace of today’s laws, this means that your estate plan should be no less than three years old. For the benefit of your family and heirs, don’t procrastinate. Your estate planning should be current with the following usual documents that we provide in our estate planning package:

       • Trust (Married or Single Individual)
• Certification of Trust
• Wills
• Nomination of Guardians for Minor Children
• Durable Powers of Attorney
• Advance Health Care Directives
• HIPAA Waivers
• Final Disposition Instructions
• Assignment of Personal Property
• Distribution Instructions for Personal Property

     We look forward to assisting you, and your loved ones, so that your estate easily and quickly transfers to your beneficiaries without unnecessary trust administrations, costs and expenses, as well as accountants and attorneys fees.

 

S. Timothy Buynak, Estate & Tax Planning Attorney
TBuynak@BFASLaw.com
(Direct) 805.966.7575
www.BFASLaw.com

DISCLAIMER: This Advisor is one of a series of business, real estate, employment, estate planning and tax bulletins prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution or use of this Advisor.

[1] Before the December 2017 enactment of the Tax Cuts and Jobs Act.