Saturday, January 22, 2011

Will the Tax Relief Act of 2010 Mean Undesirable Results For Some Trust Estate Plans

Congress passed new tax legislation re-enacting the Federal Estate Tax (Death Tax) on December 17, 2010. But the Death Tax will, at least for the years 2011 and 2012, apply only to estates that exceed $5 million net worth at death, (or $10 million for married couples).

Quite frequently over the years, estate planning attorneys drafted wills and revocable trusts establishing and funding, at death one spouse, of a “Family Trust.” These trust provisions are common in those past documents. Wills and Revocable Trusts with these type of provisions generally featured a “formula clause” that provided for the year of death exclusion amount of assets to be placed into the (irrevocable) Family Trust to be held until the surviving spouse’s death. This amount that was to be forced into such a trust was the exclusion amount. 

Now, with the exclusion amount at $5 million, there are likely several trusts that exist, where the couple have $2-3 million or so; that at the death of the first spouse the whole estate could be forced into the irrevocable Family Trust, where the survivor would receive only income and not have complete control over these assets.

It is clearly time to review your trust with your attorney to determine if this potential exists in your own estate plan.

Larry Robertson, Attorney


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