Most families have estate plan documents - either wills or trusts. Many people believe that once they have an estate plan, they need do no more. In fact, wills and trusts should be reviewed periodically. We recommend a review at least once every five years. Many clients do not realize that the law is in a constant state of flux and the failure to review an estate plan can make its administration more expensive.
Up until this decade, the exemption from federal estate tax was $675,000 per person. Then the amount of the exemption began rising steadily until now it is $3.5 million per person. Many people have A-B trusts. These are trusts with a Survivor's Trust and a second trust usually called a Bypass Trust or an Exemption Trust. These trusts were provided by your lawyer to allow the federal estate tax exemption to be doubled so that each spouse's exemption could be used, and not just one exemption for both spouses. If your estate plan has a provision to divide the trust at the first death of a spouse, it is probably an A-B Trust or an A-B-C Trust.
Many clients were provided A-B trusts by their lawyers in the past when the amount of the federal exemption was less, but do not need A-B trusts now because of the increase in the per person federal exemption. There are several disadvantages to being stuck with an A-B trust when it is not needed. Firstly, it is more expensive to administer because the trust estate must be split into two separate trusts and each asset must re-titled with the name of the A trust or B Trust. Secondly, each year the trustee must file a separate fiduciary tax return (a Form 1041) for the B trust. Finally, the assets allocated to the B trust will not get a step-up in tax basis on the death of the surviving spouse, which may mean more capital gains taxes for the beneficiaries.
If you have an A-B trust or similar trust, it may be a good idea to have it reviewed to determine if the A-B provisions are still necessary.
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