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Credit Shelter Trusts Are Still Relevant

By Howard C. Stross
November 18, 2013

Some estate planning attorneys have said that credit shelter trusts are no longer needed. A credit shelter trust is a strategy where the first spouse to die leaves property to the survivor in a trust not included in the survivor’s estate at his or her death. An estate plan that uses the credit shelter trust strategy is sometimes called A-B trusts.

In January 2013, Congress passed the American Taxpayer Relief Act of 2012 (ATRA). Under ATRA, in 2013 the exemption for federal estate taxes is $5,250,000 for a single person and, with the use of portability, can be $10,500,000 for a married couple.  In 2014 the federal estate tax exemption will raise to $5,340,000 for a single person. This has led some advisors to say that because of portability, only married couples with a net worth of more than twice the federal estate tax exemption ($10,680,000 in 2014) need credit shelter trusts. However, that assumes the only reason for leaving property to a surviving spouse in trust is federal estate tax planning.

Reducing federal estate tax is not the only goal of estate planning. See a previous blog article entitled Stop the Tax Tail Wagging the Estate Planning Dog, for more on this. There are many important goals that estate planning can accomplish other than reducing federal estate taxes.

As a member of the National Network of Estate Planning Attorneys (NNEPA), I begin my estate planning counselling at the bottom of The Planning Pyramid™. At the base of the pyramid is the question: What is important for you? The next question is what is important for your family? At the top of the pyramid is the discussion of federal estate taxes, only after the foundation is laid. An estate planning conversation that begins and ends with federal estate taxes misses opportunities to find out what is deeply important to you. Your estate should be unique to you instead of a one-size-fits-all estate plan.

There are non-tax reasons you may be interested in leaving property to your spouse in a trust. Leaving property to a surviving spouse in a trust is a way to protect what they receive from the life risks which may come along during the rest of their life:

  • catastrophic illness costs
  • unexpected creditors
  • going to someone else’s family if he or she remarries

A credit shelter trust may not be needed based on conditions now but as we go through life, things change. What if Congress lowers the exemption for federal estate tax in the future? What if the family forgets to file a federal estate tax return to make use of a portability election? (Portability will be discussed in an upcoming post.)  An estate plan can be flexible but we don’t know when you will pass away, what the law will be when you pass away, what assets you will own when you pass away, and what your family situation will be. You need an estate plan to work at an unknown time, for unknown laws, for unknown assets, for an unknown family situation, and for unknown goals. Sounds like a daunting task, doesn’t it? We have a program that shifts the work of reviews and updates to our staff, includes education for you and your family and offers other benefits. Stross Law Firm offers an estate planning maintenance program, Peace Of Mind A Life Plan for Everyone, so your estate plan evolves as conditions change in the future.

This is the first article in a series about credit shelter trusts. The next installment will look at planning for married couples that prepare for future uncertainty.

This article is not intended to provide legal advice or encourage anyone to do estate planning without the guidance of an experienced estate planning attorney. Call us at 813-852-6500 to schedule a free 30-minute consultation with an estate planning lawyer.

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