Trusts After 2010 Estate Tax Reform

Jan 9, 2011

Since the extension of the so-called "Bush Tax Cuts" by Congress on December 17, 2010, and the very favorable changes to the Federal Estate Tax, I have received numerous calls and e-mails, all asking essentially the same question: "Can I scrap my Trust?" My answer is, "of course not!" Indeed this question underscores the continued misunderstanding by clients and advisors alike about the part Trusts play in the Estate Planning Process. We too frequently view the process as only a tax-driven process. In one of my earliest Blogs here, I pointed out that Estate Planning is an overall process involving a number of tools, only one of which is a Trust, which covers only some portion of a well-thought out Estate Plan. So, with changes which eliminate estate taxes as a concern for the vast majority of our clients, I get very concerned that clients and their advisors will unwittingly abandon one of the more important and useful planning tools.

The function of a Revocable Trust Agreement in the estate plan is primarily as an administrative tool to manage and distribute assets, during lifetime, during incapacity, and after death. It most often acts as a Will substitute, and properly structured and maintained, can avoid the need of Probate Court proceedings. With proper drafting, a Trust can also restrict the scope of "outsiders" entitled to information on administration, and can manage assets for minors, and others who are not ready or capable of handling assets yet.

What the new Tax Law does do is, in my view, allow us to vastly simplify the Trust planning we have customarily done to avoid taxation, making it an even more palatable and powerful tool. As I read the new law provisions, even for the relatively rare clients who may have assets exceeding $5 million, we no longer need to set up separate Trusts for spouses and divide up assets before a death occurs. Thus, Trust planning has just become more flexible and inviting in my view.


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