The new Tax Act makes one thing a lot simpler: you can be left alone when your spouse dies. You won’t have to ask for something from, and you don’t have to answer to, someone supposedly on your side (i.e., a trustee).
In other words: you don’t need a trust for any estate tax savings if you and your spouse don’t have assets over $22 million.
You may be stuck, though, with no choice in the matter, if your estate documents now have certain trust things in them. Do words like Credit Shelter Trust, Bypass Trust, A-B Trust, Marital Trust or Family Trust sound familiar?
If these are in your spouse’s estate documents, they will force a Trust to be created for you when your spouse dies. You’ll have a yoke around your neck if you don’t bother to clean those Trusts out of your documents.
And the reverse is true: if such Trust terms are in your estate planning papers, it means your spouse will get to bear that yoke when you’re gone.
Why the change? Credit Shelter, Bypass, A-B, Marital, and Family Trusts – and other trusts with similar names — were really important when the Estate Tax Credit was low.
If you did your will in 1996, the credit was $600,000. If you signed your will in 2002, the Credit covered $1 million.
So if you and your spouse had assets above those amounts, you could protect your assets up to that amount if they went into one of these Trusts.
But listen: on January 1, that number will be $11 million, or $22 million for you and your spouse.
Which means you can keep assets outright – free of trusts — up to that $11 million each without facing any estate tax.
Meaning you don’t have to live under any of those Trusts, and can do what you want with your assets, without having to ask the trustee or co-trustee for permission, blessing, consent, or anything else.
But you’ve got to clear out that language now. Having those Trusts in your current documents is a complete waste of paper, and an unavoidable burden on you and your spouse.
You may not care about what’s in your papers now because you think you can deal with it after a death. You can’t. The law doesn’t work that way. You can’t just pretend the trust never existed.
Do not pass Go, do not collect $100 because it’s going to the trustee instead.
Of course, if you’re creating a trust for another reason, such as:
- You own assets in another state, or
- You’re concerned about your spouse prudently handling money after your death, or
- You worry about subsequent spouses,
- You worry about your children and grandchildren,
- You’re looking for a type of asset protection,
or any combination of these, then a different type of trust makes sense. However, Trusts are not “One Size Fits All.” You need trust-creating words that fit what you are looking to accomplish.
In short: the formulas, limits and barriers which were common in Credit Shelter Trusts, Bypass Trusts, A-B Trusts, Marital Trusts, Family Trusts, etc. could become that heavy, heavy yoke around your neck for the rest of your life.