We continue to meet with clients who still utilize what's called a Two Trust or an AB trust. Back in its day, having an AB Trust allowed married couples to essentially double the amount that could be passed to the next generation by preserving the 1st spouse's exemption at their death and allowing an additional exemption at the 2nd spouse's passing. Unfortunately, the technique was only available through the use of a complicated "AB trust" which generally had to be prepared by an attorney to be effective.
That all changed when Congress passed legislation called "portability," allowing a surviving spouse the right to use a deceased spouse's unused exemption even if it wasn't placed in an exempt trust. In addition, the lifetime exemption amount has increased dramatically in recent years and continues to increase with inflation every year, which allows for simpler and more cost-effective estate planning. Because of portability and the increase in the exemption amounts, many AB trusts are no longer necessary.
With an AB Trust, the splitting of the first trust requires a trust administration at the first spouse's death, which may be costly and time consuming as an inventory of trust assets must be done, property must be appraised and valued, and allocations between sub-trusts need to be made. Now, because of portability and the current high exemption amount, the requirement that a surviving spouse make that allocation is sometimes unnecessary and economically impractical, and the surviving spouse can avoid a complex trust administration and simply continue to manage and control the trust property.
On the other hand, although splitting the trust in the first death may no longer be needed for tax purposes, it may still be advisable in the case of a second marriage or when spouses have different remainder beneficiaries.
We recommend that if your trust has a mandatory split provision that you have your plan reviewed. Changes in your family circumstances such as the birth, death, marriage or divorce of a child can also have an impact on your estate planning. Trustees selected may no longer be available or be a preferred choice.
External changes such as changes in the tax laws, changes in state law, and possible additions or deletions of your assets are all reasons to revisit your trust to make sure that your planning is comprehensive. For all of the above reasons, your estate plan should be reviewed every 2-3 years.
In addition, a review may be necessary to ensure that any additional assets you may have acquired have been accurately transferred into the Trust and that your Trust is properly funded. An important element of your plan is the completion of your Asset Inventory; this inventory should accurately reflect all of your current Trust assets.
If you haven't reviewed your estate plan in recent years, it may be time for a review. Call our office to schedule a consultation with one of our estate planning attorneys.
