Nevertheless, advisers must help clients weigh and analyze the benefits and drawbacks of utilizing exemption portability for their particular situation--taking into consideration the impact or remarriate, the need for bypass trust
planning and the added benefits a trust could provide.
Before the enactment of the portability provisions, spouses who both had assets exceeding the lifetime exclusion amount would typically set up a plan requiring that, on the death of the first spouse, an amount of assets equal to the exclusion amount would pass to a "credit shelter trust" or a bypass trust
for the benefit of the surviving spouse.
It is worth considering how best to preserve that main asset for when it is inherited and a spousal bypass trust
can be an effective method of reducing tax liabilities.
Portability of unused exemption: Under the law as it existed in 2009, in order to take full advantage of a married couple's combined $7 million estate tax exemption, the first spouse's exemption amount was generally held in a "credit shelter" or bypass trust
, thus complicating ownership arrangements and legal documents.
However, accumulated income and future appreciation within a bypass trust
will be excluded from the gross estate upon the death of the second spouse;
A charitable trust, for example, becomes a "capital gains bypass trust
," and an ILIT is described as "a children's trust.
In a tax bypass trust
, one spouse will put assets in a trust for the benefit of the surviving spouse up to the limit of his federal estate tax exemption, which is $2 million.
THE FOLLOW-THROUGH: While the Vinsons have wills, living wills, a durable power of attorney for healthcare, and a durable power of attorney for property, the bypass trust
is still on their to-do list.
The new edition takes recent changes to the law into account, has new graphics and charts, and replaces the Bypass Trust
with the Family Security Trust.
With a bypass trust
, "the surviving spouse gets all the benefits of the assets without the family receiving the tax burden," he says.
The text analyzes thoroughly the merital deduction, use of credit shelter bypass, use of the bypass trust
, and how to arrange these instruments so as to minimize federal estate taxes and still provide a spouse with adequate income from the estate and give the spouse power to invade the principal of the trust without losing tax shelter.
Often, estate planners counsel clients to divide assets to facilitate funding a bypass trust