When the lifetime exclusion amount was only around $600,000.00 and prior to the ability of a spouse to port or use the deceased spouse’s unused exclusion amount in her own estate, it was crucial to take advantage of the first spouse to die’s exclusion amounts or it was forever lost. With exclusion amounts near 13,000,000, and the ability of the spouse to port the unused exclusion amounts of the last spouse, it is often times difficult to justify the use of the classic two trust planning a/b formula where one trust would take advantage of the exclusion amounts, with the balance of the estate or trust going to the spouse and qualifying for the unlimited marital deduction. For unitary families a strategy employing portablIity, combined with a disclaimer strategy or a partial q tip election, which delays funding of the credit shelter trust until a time when the surviving spouse has a better perspective on whether use of the exclusion is necessary.
The two -trust formula may still be necessary in estates not nearing the exemption thresholds where other needs, such as children from a previous marriage, or other income tax considerations, make the use of the classic marital deduction formulas, a useful tool. For unitary families, most clients will be able to accomplish their estate planning objectives with using an estate tax plan that utilizes the portability and/or disclaimer strategy. This can take the form of an outright devise to the surviving spouse, with the right for her to disclaim any part or all of the devise to her, with the disclaimed portion going to a credit shelter trust to take use of the first spouse to die’s exemption amount. The marital portion can also be formed with a q tip trust, providing the first spouse to die, control of the ultimate disposition of the assets passing to the surviving spouse within the trust. With the current exemption levels scheduled to sunset in 2026, and with a democratic administration intent on bringing the exemption levels back down to around $6,000,000, the use of shelter trusThere are numerous strategies that will work depending on the particular needs of the client, including the nature of the assets funding the trust or comprising the estate, the income tax consequences of allowing these assets to get a second step in basis if left in the survivor’s estate, rather than passing through a credit shelter trust. The income tax consequences of the strategies chosen must be analyzed with these tax considerations in mind at all time. If you would like to discuss your plan , please call our office at (954) 417-4879.