New Estate Tax Law Makes 2013 the Year to Review your Will
by Dennis McAndrews, Esq
As you may have heard during the recent extensive news coverage related to the “Fiscal Cliff,” in early January, 2013, Congress recently enacted significant legislation concerning the Federal Estate Tax. In this legislation, Congress made “permanent” the Federal Estate Tax threshold of $5,000,000 per individual, and $10,000,000 per couple, adjusted annually for inflation.
The new legislation causes Credit Shelter Trusts (also sometimes referred to as an “A Trust” under an “A/B Trust” scheme) to be far less advantageous than in the past. Indeed, prior to this legislation, the use of a Credit Shelter Trust for a surviving spouse was common among estate planning attorneys where married couples possessed assets in excess of $1,000,000, as a threat constantly loomed until the recent legislation that the Federal Estate Tax threshold could return to the $1,000,000 figure which existed in 2001.
The recent legislation of January, 2013 removes most fears that a $1,000,000 threshold will be reinstated. Under the new legislation, estate plans which include a Credit Shelter Trust for individuals with an estate of less than $5,000,000 ($10,000,000 for couples) can now have negative effects, as the “formula” which is used to establish Credit Shelter Trusts requires that the Trust for the surviving spouse be funded first up to the Federal Estate Tax threshold before any outright bequest may pass to the surviving spouse or others. Consequently, wills which involve a Credit Shelter Trust now often operate to create an unnecessary and undesirable trust upon the death of the first spouse. This scenario could involve costs and inconvenience upon the death of the first spouse which can be avoided by updating your will to remove the Credit Shelter Trust.