Has portability made trusts obsolete?

On behalf of Scaringi Law posted in Estate Planning on Friday, September 18, 2015.

There are many favorable features available in estate planning, starting with the generous federal estate tax exclusion, set at over $5 million. Individuals also have the ability to avoid probate and pass assets by beneficiary designation. In addition, thanks to the portability established by the American Taxpayer Relief Act of 2012, a surviving spouse can also use a deceased spouse's unused estate tax exclusion.

Given these features, readers may question whether they should bother setting up a trust with an estate-planning attorney. The answer depends on each client's unique circumstances. However, if an individual desires the transfer of his or her assets to be over a period of time instead of a lump-sum distribution, or perhaps only for specific purposes, a trust can be an incredibly flexible tool.

Individuals with minor children may want to encourage their children to pursue certain values, such as service-oriented careers or higher education. A trust can be created that authorizes the trustee to make distributions to beneficiaries for these or other enumerated reasons. In the event of a beneficiary with children from a prior marriage, a trust can ensure that assets go to the children rather than the surviving spouse from the second marriage. A trust can also specify distributions to unmarried couples.

Admittedly, individuals may be concerned about the lack of flexibility associated with irrevocable trusts. However, careful planning in choosing a trustee and including language to accommodate changing circumstances should put such concerns about irrevocable trusts to rest. For example, a trust protector can be named who has the power to amend the trust when requested to do so by the beneficiaries, possibly without involving court approval.

Source: LifeHealthPro, "Trust planning for the middle market: 5 issues to consider," Hugh F. Smart, Sept. 10, 2015


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