It may be time for married couples to update your estate plan. Particularly if you executed a
. For a decent discussion of how these trusts work click
The problem is that as recently as 2000 the applicable exclusion amount was near $1 million dollars per spouse. Typically these bypass trusts were established so that no Estate taxes would be due upon the death of the first spouse. They accomplished this by making use of the unlimited Marital Deduction which allows one to leave an estate of unlimited size to one's U.S. citizen Spouse ( non-citizens have to use special and burdensome devices known as Qualified Domestic Trusts- QDOTS)
As an example, assume a couple, we will call them H & W for this example. Assume further that H has a separate property estate of 2.5 million dollars and W has only modest sums. Further assume H dies first with the current annual exclusion amount( See here for a discussion of why the applicable exclusion amount is likely to remain at $3.5 million for the foreseeable future).
Assume further that H & W had a credit shelter trust established when the applicable exclusion amount was far lower ( $1 million or lower). Assume further that the credit shelter trust did not provide for income and principal distributions to the surviving spouse because it was established solely for members of H's family ( those other than W).
Under the current rules and the above scenario no marital deduction trust would be created when the deceased spouse's estate was less than $3.5 million. So assuming H dies first, upon his death all of H's property would stay in the credit shelter ( aka bypass trust) and the marital deduction trust would never get funded. Now W does not have access to the income that she would have had when the applicable exclusion amount was lower.
What was contemplated when this plan was made was that given the same size of Estate ($2.5 million) and an applicable exclusion amount of $1 million ( what would have happened as recently as 2001) $1 million would have gone into the bypass trust for H's family, with the balance ( $1.5 million) going to fund the Marital deduction Trust which W could raid at will for her living expenses.
So those with Estates greater than $1 million and less than I would say 4.5 million may presently have a plan that will not accomplish the common goal of providing income and if need be principal to the surviving spouse. Indeed in the extreme example above W might soon end up penniless.
So what's the solution? Well for starters its time to see an Estate Planning Attorney in your area to amend your revocable living trust. Though technically called a modification in California, or a restatement, either way you are amending the terms of the trust. Most revocable living trusts are fully amendable while both spouses are alive and well and acting as trustees. With some relatively simple amendments, the problem can be avoided and the surviving spouse can be left with the certainty that there will be some means of support.
ABOUT CHRISTOPHER R. TWINING
Christopher R. Twining, Attorney at Law, based in the Westwood Neighborhood of Los Angeles is an innovative estate planning, probate & trust administration, and elder law attorney, who offers in home services for busy and movement challenged clients. The Law Office of Christopher R. Twining serves the cities of Los Angeles, Santa Monica, Culver City, Beverly Hills, West Hollywood, Pasadena, Burbank and the neighborhoods of West Los Angeles, Westwood, Brentwood, Bel-Air, Pacific Palisades, Palms, Pico-Robertson and Encino. Dedicated to helping individuals and couples prepare comprehensive estate plans according to their wishes; he offers them these services at an affordable price, in the relaxed comfort of their homes. For more information about his services, please visit http://www.twininglaw.com or call (310) 492-5990.
CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com
