With the new administration in place, I am regularly asked what is going to happen to the estate tax. I wish I knew.
Back in 2001, the big news was the repeal of the estate tax. The 2001 act slowly phased out estate tax and generation skipping transfer tax.
The estate and generation skipping transfer taxes are slated to disappear for calendar year 2010. But, due to a sunset provision, the law that was in effect in 2001 reappears in 2011.
At that time, if nothing has changed, the applicable exclusion amount reverts to $1 million.
So how do you plan when you don't know if there will be estate or capital gains taxes to pay when you die? Or if there will be taxes to pay, how do you plan if you don't know if the magic number will be $1 million, $3.5 million or something else?
One approach is to plan in some flexibility. Many married people have unnecessarily rigid and complicated trusts, commonly referred to as “A-B” trusts, which at the time of death of the first spouse require that the trust estate be divided in two: A survivor's trust (A) and an irrevocable, non-amendable decedent's trust (B).
These are fine for people who want to make sure the surviving spouse cannot change beneficiaries after the first spouse dies. However, they are subject to strict requirements, including annual accountings, separate tax returns and ongoing disclosure of financial information to contingent beneficiaries.
Many people just want to make sure the surviving spouse is well provided for during his or her remaining lifetime and they trust their spouse to make appropriate decisions regarding beneficiaries after both are gone. If this is your situation, and you currently have an “A-B” trust, you may want to consider eliminating the “A-B” requirement in favor of a disclaimer trust provision.
The disclaimer trust offers the same tax advantages as the “A-B” trust, but provides flexibility because it permits, rather than requires, the survivor to divide the trust assets into two trusts. The decision is made after the first spouse dies and all of the circumstances are known.
It is imperative that you review your existing estate plan now and plan to review it again every year or two for the time being. Unfortunately, at this point, it is not realistic to plan beyond 2011.
For more information, call (760) 745-7576 or visit www.estateandtrustlaw.com.
Back in 2001, the big news was the repeal of the estate tax. The 2001 act slowly phased out estate tax and generation skipping transfer tax.
The estate and generation skipping transfer taxes are slated to disappear for calendar year 2010. But, due to a sunset provision, the law that was in effect in 2001 reappears in 2011.
At that time, if nothing has changed, the applicable exclusion amount reverts to $1 million.
So how do you plan when you don't know if there will be estate or capital gains taxes to pay when you die? Or if there will be taxes to pay, how do you plan if you don't know if the magic number will be $1 million, $3.5 million or something else?
One approach is to plan in some flexibility. Many married people have unnecessarily rigid and complicated trusts, commonly referred to as “A-B” trusts, which at the time of death of the first spouse require that the trust estate be divided in two: A survivor's trust (A) and an irrevocable, non-amendable decedent's trust (B).
These are fine for people who want to make sure the surviving spouse cannot change beneficiaries after the first spouse dies. However, they are subject to strict requirements, including annual accountings, separate tax returns and ongoing disclosure of financial information to contingent beneficiaries.
Many people just want to make sure the surviving spouse is well provided for during his or her remaining lifetime and they trust their spouse to make appropriate decisions regarding beneficiaries after both are gone. If this is your situation, and you currently have an “A-B” trust, you may want to consider eliminating the “A-B” requirement in favor of a disclaimer trust provision.
The disclaimer trust offers the same tax advantages as the “A-B” trust, but provides flexibility because it permits, rather than requires, the survivor to divide the trust assets into two trusts. The decision is made after the first spouse dies and all of the circumstances are known.
It is imperative that you review your existing estate plan now and plan to review it again every year or two for the time being. Unfortunately, at this point, it is not realistic to plan beyond 2011.
For more information, call (760) 745-7576 or visit www.estateandtrustlaw.com.