Change in Assets/Estate Taxes

Needless to say, if your financial situation has changed substantially since you last met your estate planning lawyer, it may be well worth your time to sit down with him or her to discuss how your balance sheet has changed, for better or for worse.

Years ago, our estate tax exemption amounts were much lower (e.g. $1.5 million per person in 2004) and many more people here in California had taxable estates. Estate planning lawyers drafted trusts with various provisions to counter this federal estate tax regime in order to minimize or entirely eliminate estate taxes for their clients. Specifically, these lawyers created A-B Trusts, which utilized the estate tax exemptions of each spouse.

While a thorough description of how an A-B Trust works is beyond the scope of this article, it is important to understand that certain restrictions are placed on the surviving spouse in order to qualify for the aforementioned estate tax benefits – restrictions that most surviving spouses didn’t really want, but put up with to get the tax benefits.

In 2014, where we currently enjoy estate tax exemptions of $5.34 million per person, the vast majority of estates are not taxable, yet these trusts still contain unnecessary restrictions that can have a big impact on how you will be able to spend your assets after the death of your spouse. It’s worth reviewing, whether or not your trust should be restated to a more simple trust structure.