Not-So-New Estate Planning Tax Laws Now in Effect

PortabilityDetermining a process for passing assets on to heirs is an integral part of the estate planning process. But it's not always easy to determine the wisest path, given the many options available as well as changes to the tax laws. It is these changes in the tax law that are the subject of this blog.  With so many of my clients failing to act on my advice for it is time to book their complimentary review so that they might learn how these changes might impact their estate plan, I turned to this medium as a way of encouragement.

The (Anderson, IN) Herald Bulletin article, "Changes in laws can affect your estate planning," explains that the revocable living trust was created with the thought of assisting people in avoiding probate. However, the purpose of this trust far exceed this simple albeit desirable solution.  Such a trust, if properly drafted, can achieve asset protection for surviving spouses and your residuary beneficiaries for generations if such asset exist. In this age of multiple marriage, a trust is the only vehicle that can easily be used to provide for the surviving spouse while virtually guaranteeing that remaining assets will go where you want them to instead of a new spouse or exclusively to of children of the survivor.  A revocable living trust has 4 characters which include the Trustmaker (sometimes referred to as the Grantor or Settlor) who creates the trust, the Trustee who is the manager of the trust assets (typically the Trustmaker until incapacity or death), the initial beneficiary (also usually the Trustmaker), and the remainder or residuary beneficiaries. While you are living, taxes from trust investments and trust income are reported on a standard tax return. When assets are placed in a trust ("funding the trust"), the Trustee has control of the assets for the enjoyment of the beneficiaries. Ownership is structured so that there is no probate. Individuals should fund the trust with as many assets with which they are comfortable (except IRAs and retirement accounts which should go into the trust by beneficiary designation at death so that they too have asset protection for the beneficiaries).

The article notes that under previous laws, two subtrusts would be set up for married couples.  This is known as AB trust planning.  At the death of the first spouse, the assets of the survivor were funded to the Marital Trust and the assets of the deceased spouse were funded to an irrevocable “credit shelter’ trust. The idea was that when the first spouse died, their estate tax exemption was preserved by through the use of the irrevocable trust thus avoiding the payment of the ‘death’ tax. In other words, before the recent implementation of "portability," or the application of the tax credit, individuals had to use it or lose it. However, it is important to note that ‘portability’ is not always the solution especially in cases in which there are children from separate marriages or more complicated familial relationships.

That said, with portability, a person doesn't have to use it or lose it when the first spouse dies. This change makes it imperative that people re-examine their trusts to determine if and how this change might affect their current trust planning. 

The article acknowledges that we all like to compartmentalize decisions, and that it's especially easy to do so with estate planning. Who wants to talk about what's going to happen after you're dead? Not a popular topic with most people. Even so, poor planning—or no planning—can really impact investments and tax planning, as well as plant the seeds for a major headache for your heirs. Talk over all of these important matters with your estate planning attorney, so that you can make informed decisions about the future.

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.  However, proper estate planning is not a do-it-yourself project.  Why not call us for a complimentary consultation at 757-259-0707.

Reference: The (Anderson, IN) Herald Bulletin (July 10, 2015) "Changes in laws can affect your estate planning."


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Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.