Wednesday, August 8, 2018
Warning: $10 Million Estate Tax Exemption Can Overfund Trusts at Death and Harm Your Surviving Family
The increase in the generation skipping transfer (GST) tax exemption in the recent legislation may appear to be a great addition to a wealthy person's estate plan, but it could lead to issues if not calculated properly for wills or trusts executed prior to 2018. The death of one spouse could result in a "lopsided" subtrust structure that is contrary to the deceased spouse's intent.
Before the increase, married couples' estate planning documents often directed the estate tax exemption amount to pass to a "credit shelter," "family," "A-B," or "bypass" trust—usually for the benefit of a spouse and/or children—with the excess passing either to the surviving spouse outright or to a marital trust for the surviving spouse's benefit. If a married couple fails to update a "bypass trust" estate plan executed before 2018, and if one spouse dies in 2018, then all or most of the deceased spouse's assets could end up funding the bypass trust(s) without any excess flowing outright to, or in trust for, the surviving spouse (as was intended upon execution of the will or trust).
See John R. Cella, Jr., Warning: $10 Million Estate Tax Exemption Can Overfund Trusts at Death and Harm Your Surviving Family, Ward and Smith, August 3, 2018.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.