This is an introduction for a six part series on planning for married couples. Over the next several weeks, I will be presenting a series of blogs concerning Asset Protection Strategies, Building Flexibility into an Estate Plan, and Comparing Trust Design Options for Married Couples. This is increasingly important information as there has been a shift from the traditional estate planning methods.

Traditional Estate Planning

Prior to the enactment of the Economic Growth and Tax Reconciliation Act of 2001, the federal estate and gift tax exemption was $675,000. The maximum federal estate and gift tax rate was 55%, the capital gains tax rate was 20%, and portability did not exist. Since the estate tax rates were significantly higher than the income tax rates, avoidance of federal estate taxes usually took precedence over asset protection planning and a potential loss of income tax savings from a second step up in basis at the death of the surviving spouse on appreciated property. (1)

Traditional estate planning focused on preserving each spouse’s exemption by dividing a couple’s assets. At the death of the first spouse, an amount equal to the deceased spouse’s remaining exemption was placed in a bypass or credit shelter trust for the benefit of the surviving spouse. The balance, if any, was distributed outright to the surviving spouse or placed in a marital trust.

The New Paradigm

The passage of the American Taxpayer Relief Act of 2012, which raised the federal estate gift, and generation-skipping tax exemptions, presently referred to as the “Applicable Exclusion Amount” to $5.43 million for 2015, coupled with the permanent enactment of “portability,” has dramatically changed our estate planning perspective. For most of our clients, the focus will now shift from avoiding federal estate taxes to a myriad of other concerns that must be addressed in implementing their estate plan, including: (2)

  1. Portability.
  2. Loss of the deceased spousal unused exclusion amount.
  3. Loss of “step up” in basis due to lifetime transfers of appreciated property.
  4. Preservation of a second “step up” in basis at the death of the surviving spouse.
  5. Asset protection at the death of first and second spouse.
  6. Avoiding probate at the death of each spouse.
  7. Planning for remarriage and blended families.
  8. Planning for children with disabilities.
  9. Planning to avoid fractional interest discounts for non-taxable estates.

Need more information on estate planning? Whether you are planning for yourself or a family member, The Elder Law Center of Mondschein and Mondschein, P.A. is here for you. Please contact us using this online form here, or call our Miami office at 305.274.0955 for a free phone consultation.

To download a complete copy of the entire book Planning For Married Couples, visit our ebook center  at http://miamieldercarelawyers.com/ebooks.html.

References:

  1. Paul S. Lee, Venn Diagrams: The Intersection of Estate & Income Tax (Planning in the ATRA-Math), Bernstein Global Wealth Management, New York, NY (October, 2014)
  2. Steve R. Akers, Estate Planning: Current Developments and Hot Topics, Bessemer Trust, Dallas, Texas (June, 2014), page 10