Review and Revision of Estate Plan Documents

Most families have estate plan documents – either wills or trusts. Many people believe that once they have an estate plan, they need do no more. In fact, wills and trusts should be reviewed periodically. We recommend a review at least once every five years. Many clients do not realize that the law is in a constant state of flux and the failure to review an estate plan can make its administration more expensive.

Federal Estate Tax

Up until 2002, the exemption from federal estate tax was $675,000 per person. Then the amount of the exemption began rising steadily.  In 2017, it is $5.49 million per person, and it will continue to rise every year.

A-B Trusts or Bypass Trusts

Many people have A-B trusts. These are trusts with a Survivor’s Trust and a second trust usually called a “Bypass Trust” or an “Exemption Trust.” These trusts were provided by your lawyer to allow the federal estate tax exemption to be doubled so that each spouse’s exemption could be used, and not just one exemption for both spouses. If your estate plan has a provision to divide the trust at the first death of a spouse, it is probably an A-B Trust or an A-B-C Trust.

Many clients were provided A-B trusts by their lawyers in the past when the amount of the federal exemption was far less and one wanted to be sure that both spouses’ exemption limits were used.  Not only has the individual federal exemption amount increased greatly but effective 2013, the Congress passed laws to allow the “portability” of one spouse’s federal estate tax exemption to the other. This means that when the first spouse dies, his or her unused estate tax exemption can be transferred to the surviving spouse; and when the surviving spouse dies, his or her estate is exempt from federal estate tax to the extent of the survivor’s exemption and the remaining exemption of the first spouse to die. To take advantage of portability, the surviving spouse must arrange to file a 706 Federal Estate Tax Return within nine months of the death of the first spouse to die.

If you have an A-B trust or similar trust, it may be a good idea to have it reviewed to determine if the A-B provisions are still necessary.  The existence of a Bypass Trust or Exemption Trust may increase the amount of capital gains taxes that beneficiaries have to pay.

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