Florida Elder Law & Estate Planning Blog

Are you a married couple with an old AB Trust?

Setting up an estate plan requires making some of life’s most serious decisions. Little wonder so many people procrastinate over doing it. But as you can imagine, it’s the biggest procrastinators who feel the greatest relief when they finally get it done!

Don’t procrastinate after you get it done, either. Every plan must be reviewed periodically. As circumstances change, your plan may require fine-tuning to continue to provide all the protections you want for yourself, your family and your hard-earned assets. A crackerjack plan you established a decade or two ago may not be optimal now, because of changes in your family situation, your finances, your health, or new laws.

Your tax planning may be outdated

One example of the constantly changing legal landscape is tax law. Back in 2001, the federal lifetime estate tax exemption was $675,000. At that time, for spouses who wanted to utilize both of their exemptions – i.e., to pass on twice that amount, estate tax free – the AB Trust was the go-to strategy. Also known as a credit shelter trust, it called for two trusts to be created upon the death of the first spouse: one trust for the spouse, and the other, a credit shelter.

Today, the tax law is different. Currently, an individual can pass on a total of $5.45 million during his/her lifetime, free of federal estate and gift tax. A married couple can pass twice that amount. Also, the IRS now permits portability, whereby a surviving spouse can elect to use any unused portion of the deceased spouse’s exemption.

As a result of these developments, most couples today do not have taxable estates, and thus, the AB Trust provides them no benefit in this respect. For these couples, the AB Trust imposes an unnecessary burden and expense: When the first spouse passes away, two trusts will have to be maintained, incurring additional paperwork, expense and monitoring.

If you are a married couple with an AB trust, consult your estate planning/elder law attorney to discuss this issue. You may want to consider replacing your AB Trust with a disclaimer trust (also known as a spousal option trust). The disclaimer trust is a more flexible strategy, giving the survivor the option of maintaining two trusts, depending on the tax climate at the time of the first death. Of course, a couple with a taxable estate will probably want to hang on to their AB Trust. It may also be advisable to retain the AB Trust if there is a significant chance that the survivor will be a resident of a state with its own estate tax at the time of his/her death. All of this should be discussed with your attorney.

The Karp Law Firm offers clients complimentary reviews

Regardless of your marital and financial status, it is always wise to review your estate plan periodically, even if it appears nothing has changed. Our Florida estate planning lawyers stay up-to-date on changes in state and federal laws and will know what impact, if any, those changes could have on your plan’s effectiveness. The Karp Law Firm provides clients with a free review consultation every three years, or sooner if a client has a significant change in health, family or financial circumstances.

Some lawyers who say they do estate planning will simply provide you with a stack of papers. After the ink is dry, you are pretty much on your own. That’s not the way The Karp Law Firm does things. We urge readers who are not in our firm’s geographic area to retain a qualified lawyer who will continue to be there for them as circumstances change. Because change is one thing you can always count on.