Certain transfer tax cuts have become federal law

Readers of this blog likely appreciate the importance of estate planning. Among other purposes, estate instruments, such as wills and trusts, can help individuals prepare for long-term care needs, ensure that their directives will be carried out, and help minimize the estate tax implications arising from inheritance property transfers.

One relatively new update in that practice area is the American Tax Relief Act of 2012. President Obama signed this act into law in January 2013, but its policy extends back to tax cuts proposed by former President George W. Bush. Specifically, ATRA codified into law some of the Bush tax cuts.

According to some commentators, the new provisions -- and tax cuts -- provided by ATRA will make credit shelter trusts a less popular estate planning instrument. As background, credit shelter trusts are set up to utilize the exclusion amount provided to each decedent under the transfer tax system. In 2014, $5,340,000 is the value of assets that can be excluded from estate tax.

As readers know, a surviving spouse generally becomes the sole owner of any assets that were jointly owned during the marriage. For high asset estates, however, there may be additional property that doesn’t pass directly to the surviving spouse. Property solely owned by one spouse would be an example. Such property might be a good candidate for funding a credit shelter trust.

The rules surrounding credit shelter trusts can be complicated to apply correctly, without the assistance of an estate planning attorney. In addition, the new ATRA provisions may require that existing wills and trusts be updated. In these endeavors, an experienced attorney can provide valuable expertise.

Source: Forbes, “Planning for Married Couples After ATRA -- Part I,” Lewis Saret, March 18, 2014