Seven Good Reasons Credit Shelter Trusts Remain Relevant
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Written by Morgan T. McDonald
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Tuesday, 27 December 2011 |
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• New provisions of the Tax Reform Act of 2010 allow a spouse to pass along any unused portion of a $5 million estate and gift tax exclusion to the surviving spouse. At first glance, this "portability" of the exclusion might seem to replace the traditional method of accomplishing the same goal by funding a credit shelter trust with an exclusion amount.
• However, for at least seven reasons, credit shelter trusts still have a role in estate planning, and advisers should rarely, if ever, rely exclusively upon portability.
• For one, portability is currently only a temporary provision, set to sunset at the end of 2012. For another, a number of states also impose an estate and/or gift tax.
• Although the basic exclusion amount is now indexed for inflation, a "deceased spousal unused exclusion amount" is not. If the surviving spouse long outlives the other, inflation could significantly diminish the unused exclusion amount as opposed to using a trust, where trustee administration that includes sound, moderate-risk investments could significantly increase the value of assets passing free of estate tax.
• An executor could fail to make the timely election required for portability, which also requires filing an estate tax return on behalf of the deceased spouse. This may otherwise be an unnecessary expense for estates below the exclusion amount. In addition, a shelter trust may still be indicated with respect to the generation-skipping transfer tax, whose exclusion amount is not portable.
• Portability can be complicated by multiple marriages and can leave assets vulnerable. A trust can protect those assets from liability claims and dissipation.
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Last Updated ( Tuesday, 27 December 2011 )
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Basic Estate Planning
