To minimize estate taxes, it’s crucial that you keep your estate planning up to date. If you established a credit shelter trust, bypass trust, or AB trust before 2011, it’s time to take a second look. Changes in the law have likely rendered much of your prior planning obsolete, if not outright dysfunctional.
Trusts can provide creditor protection while allowing for the control and management of assets beyond death. Many trusts have been set up as credit shelter trusts, with the intent that they would receive and hold assets from the first spouse upon their death. This preserved the estate tax exemption, which would have been lost if all assets had passed directly to the surviving spouse. The estate can continue to grow tax-free, for the benefit of the surviving spouse and children.
Unfortunately, the credit shelter trust is extremely complex, and in many cases is no longer necessary. In 2013, new legislation made this type of estate plan obsolete for most married couples. The current law allows transfers of as much as $5.43 million, and the surviving spouse can claim the deceased’s estate tax exemption via an election on the estate tax return. Portability allows the surviving spouse to use tax benefits the deceased failed to, in addition to their own estate tax exemption. This eliminates the need to divide assets between the spouses in order to fund trusts individually. A married couple can leave up to $10.86 million free of estate taxes, without the need to separate assets to fund AB trusts.
The greatest risk created by credit shelter trusts may be the creation of capital gains tax liability. While assets receive a step-up in basis after the first spouse’s death, those assets funding a credit shelter or bypass trust won’t be stepped up again upon the second spouse’s death. This means that any appreciation of these assets will be subject to capital gains taxes when sold by heirs after the surviving spouse’s death.
If you have a credit shelter trust in order to minimize your estate taxes, now is a great time to reassess your plans. An estate plan providing for the outright distribution of assets to the surviving spouse – coupled with the power of the portability provision – can achieve the same estate tax relief without generating capital gains tax liability.
At Werba Rubin, we’re committed to helping you preserve your wealth, plan for the future and achieve your wealth management goals. Contact us today for a comprehensive financial analysis centered around your estate planning needs.
Oct 17, 2017 Comments Off on 5 Important Things to Know About Payroll Services
Oct 09, 2017 Comments Off on Three New Bitcoin Wallets
Oct 06, 2017 Comments Off on How is remittance managed in Greece?
Sep 28, 2017 Comments Off on A Couple Tips To Reduce Your Tax Return Depression!
Feb 08, 2017 Comments Off on Why Establishing Good Credit Is Crucial
Nov 28, 2016 Comments Off on 3 Vital essentials you should know about credit card identity theft – How to avert them
Nov 24, 2016 Comments Off on Best Credit Cards for Expats in Singapore
Oct 04, 2016 Comments Off on Improve Your Credit Score Fast