Keeping Your Living Trusts and Estate Plans Current

The Osofsky Law firm urges clients to review their estate plans or living trusts to keep them current. Even economic conditions occurring in the U.S. can greatly alter your original intent.

Revocable “living” trusts can be a prudent estate planning device, but must be kept current. Prior to the 2001 changes in the tax law, the personal lifetime exemption from estate tax was $675,000. Couples often based their plan design on that rule. But when the exemption was increased to $3.5 million, the playing field changed. In fact, many couples had not updated their trusts to accommodate this change. “The tax landscape had been dramatically altered since many couples originally designed their trusts,” says Gene L. Osofsky, of the law firm Osofsky and Osofsky. There were other differences in those pre-2001 documents. “Many of these older trusts contained directions to split the trust estate into mandatory sub-trusts upon the death of the first spouse. This mandatory split was usually ‘tax driven’ and designed to preserve each spouse’s personal exemption, and thereby reduce or eliminate estate taxes over the span of two deaths. The ultimate goal was to transmit the maximum gift to the couple’s remainder beneficiaries, usually their children,” Osofsky explains. When the exemption amount changed, these trust provisions became archaic, or else applicable to much larger estates. Sometimes in the aftermath of the change, with an out-of-date document in hand, the surviving spouse’s access to the couple’s original assets was restricted without a corresponding tax benefit ensuing.

An admonition to draw from all this would be difficult to hear. Married couples who have created Revocable “Living” Trusts prior to 2001, as well as many who had created such documents afterwards – especially by non-attorneys and by so-called “trust mills” — would be well advised to have their trusts reviewed by a competent professional.

More recently, a severe recession has created similar issues for estate plans, to the extent that they were designed with higher asset values in mind. Trusts should also be reviewed, even if is of recent origin. While the estate tax rate is 45% under current federal law, it stands to be eliminated in 2010, then scheduled to be increased to 55% in 2011 even as the exemption will be reduced to $1 million. Says Osofsky, “While the markers are present in the political landscape to likely reinstate the taxed estate rate at 45% in 2009, while keeping the $3.5 million ceiling intact, it’s not exactly clear if this will actually happen.”

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