Estate Planning, Probate & Elder Law Attorneys

» 5 Things You Need to Know About the Estate Tax in 2010: #3 (Trust Problems)

An effective estate plan should be flexible enough to accommodate changes in circumstances -- maybe not every change, but many of them. For instance, instead of specifically referencing the estate tax exemption amount when drafted, most well-drafted documents contain a formula based on the exemption amount in effect when the decedent dies. But does your estate plan account for the possibility that there will be NO federal estate tax when you die?

A lot of married couples have what's known as an A-B plan. If one spouse dies, two trusts are created for the survivor:

(A) Family Trust: usually containing an amount equal to the federal estate tax exemption amount at the death of the first to die

(B) Marital Trust: containing everything else owned by the first to die

The goal is no federal estate tax at the death of the first to die. The Family Trust is by definition exempt from federal estate tax, and the Marital Trust qualifies for the marital deduction (so is not subject to federal estate tax). The surviving spouse is the only beneficiary of the Marital Trust; the Family Trust's beneficiaries might be just the surviving spouse, the surviving spouse and kids of first to die, or just the kids of the first to die.

But what happens if there's no estate tax whatsoever? If the above language is used, the Family Trust isn't created (no exemption = no federal estate tax = no Family Trust). So there's just a Marital Trust.

Alternatively, you could draft a trust whereby the Marital Trust contains the "smallest amount that will result in no federal estate tax," and the Family Trust contains everything else. Under that scenario, no Marital Trust is created (the "smallest amount" would be $0). So there's just a Family Trust.

So what's the problem? There may not be one, if we're talking about a traditional nuclear family where the spouse is also the sole beneficiary of the Family Trust. But what if both spouses have children from a prior marriage? In that case, we may have a Family Trust of which the surviving spouse isn't the sole beneficiary (or not a beneficiary at all). And we run the risk, under the above scenarios, of either shortchanging the surviving spouse (no Marital Trust created) or shortchanging the kids (no Family Trust created).

» Her Fearful Symmetry, the Victorians, and Decapitation Provisions

The holiday break gave me a chance to finish Audrey Niffenegger's Her Fearful Symmetry, which I mentioned in my last post. There are a few references to probate and estate planning in the novel, but this is my favorite -- it's a quote given by one of the main characters (Robert) while he gives a tour of London's Highgate Cemetery (which plays a major role in the book).

"Before modern medical technology, people had a difficult time determining when someone was really dead. You might think that death would be pretty blatant, but there were a number of famous cases in which a dead body sat up and went on living, and many Victorians got the jim-jams just thinking about the possibility of being buried alive.

Being a practical people, they attempted to find solutions to the problem. The Victorians invented a system of bells with strings attached that went through the ground and into the coffin, so if you woke up underground you could pull on your bell till someone came to dig you up. There's no record of anyone being saved by one of these devices. People made all sorts of odd stipulations in their wills, such as asking to be decapitated as insurance against an undesired revival."

A Will with a decapitation provision? Excellent!

» Tax Tricks For Kids
Here's how your bundle of joy can save you a bundle in taxes.

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