You Still Need a TrustFeb 09, 2012 / By: Pablo Palomino, Estate Planning Attorney / Category: Taxes, Wills & Trusts
You may (or may not) have heard about “portability” and the ability for both a husband and wife to use their full federal estate tax credits, without trust planning. Don’t be so sure.
You absolutely still need trust planning and here’s why.
Why You Need Trust Planning
The trust we’re discussing is usually included in a revocable living trust. (It can be included in a will, but will-based planning has pitfalls and trusts have virtually no pitfalls.)
This planning is called “credit shelter trust” planning or “AB trust” planning. It’s a good idea for all married couples, who have revocable living trust planning, to include credit shelter/AB trust planning.
- To pay the least federal estate and generation-skipping tax possible.
- To provide asset protect for trust assets, so they can’t be taken by your spouse’s or children’s creditors (bankruptcy, lawsuit, malpractice, divorce, and the like.)
Why You Can NOT Count on Portability
There are four reasons you cannot count on portability and still need credit shelter/AB trust planning.
1. Portability ends December 31, 2012. Unless both you and your spouse are going to die before then, portability won’t work for you.
2. Portability requires that the executor/trustee (of the first spouse to die) file a federal estate tax return; this isn’t typically done unless there is a taxable estate and if the marriage is a second or third marriage, the executor/trustee may not cooperate.
3. Portability provides absolutely NO asset protection.
4. Portability is riddled with pitfalls and, likely, to have fallout litigation.
If you’re married and doing trust-based estate planning, be sure to include a credit shelter/AB trust; despite portability rules, you still need a trust. A qualified estate planning attorney can help you.
Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.