New modifications to the estate tax law could make trusts unnecessary for many wealthy Texas residents, experts say. Because the new law makes estates of up to $10.5 million for couples and $5.25 million for single taxpayers exempt from federal estate tax in 2013, those with less than these sums in assets may not need a trust to avoid probate as they would have under previous iterations of the law. According to one estate-planning attorney, an increasing number of people are even undoing previously established trusts.
Trusts are still useful for some purposes, however. Individuals who wish to more tightly control their children’s inherited assets or those who need to provide for children with special needs should keep their trusts. Likewise, those in second marriages who need to put aside money for existing children will likely need to use a trust in order to prevent a spouse from naming new beneficiaries.
However, experts say that anyone who set up a trust with the primary purpose of saving on estate taxes should reassess those trusts and consider amending them in accordance with the new rules.
One particularly popular type of trust that may be rendered relatively useless is the credit shelter trust, which spouses frequently establish to limit estate taxes. The new estate tax law includes a permanent portability measure, which allows one to expand one’s own exemption with any unused part of a deceased spouse’s exemption. For couples with credit shelter trusts, this new consideration could make a trust less cost-effective given the additional administration and accounting required.
Likewise, those with transfer trusts will likely want to revisit them in the wake of the new estate tax law. Failure to do so could result in one’s grandchildren receiving more money than initially planned due to the exemption increase.
Source: Palm Beach Daily News, “New tax laws may make trusts unnecessary,” Gail Liberman, Feb. 3, 2013