Estate planning prepares for the future and provides security for your loved ones.
Estate planning documents are more than just legal paperwork. They express how you wish to care for your loved ones. In crafting your estate plan, you decide who will care for your children in the event of your death. You determine whom to trust with medical decisions if you become sick. You arrange for your loved ones to receive most or all of your assets on your passing, in an estate plan crafted to minimize taxes and legal fees.
Whether your assets are valued at less than $10,000 or over $4,000,000, our law firm can tailor an estate plan to meet your distinct needs. Our firm has the experience, integrity, and understanding to guide you through the process. Call us for a free half-hour initial estate planning consultation.
Estate Planning Tips From Our Office:
Estate Planning Tips for 2018
March 2, 2018
It's tougher than usual this year to follow legal trends affecting estate planning and benefits. But we can discuss where they are not going, or where they have not gone yet.
SIMPLE TRUSTS ARE PREFERABLE FOR MANY FAMILIES
The majority of U.S. taxpayers, not having such wealth, now have less use than ever for the provisions in older trusts that call for dividing a single original family trust into "A" and "B" subtrusts (or "survivor's" and "bypass" trusts). The "A-B" mechanism, popular in the late 1980s and the 1990s, was designed for much lower estate tax thresholds that no longer apply. Most households no longer have any tax reason to restrict the surviving spouse's control of half the assets. Unless a trust's creators are exceptionally rich, or have a strong family reason to keep bequests separate, they are likely to find they can rewrite -- or, if necessary, reform -- any "A-B" provisions remaining in an older trust.
Fortunately 2017 saw the California legislature's passage of SB 333, which eases the reformation of irrevocable trusts where the surviving beneficiaries are in accord. Reformation is a possibility for family trusts where divisions into subtrusts have already become irrevocable due to a spouse's death.
The trusts that our office writes use a flexible "disclaimer" provision that still allows the surviving spouse to split off some assets and make them separately taxable, but does not impose any requirement to do so.
ANNUAL GIFT ALLOWANCE INCREASES TO $15,000
Gift tax limits rose on a more ordinary scale than the estate tax threshold. The threshold for a gift without a required gift tax return had remained from 2013 to 2017 at $14,000 per donor, per recipient. As of January 1, 2018 it increased to $15,000, or $30,000 for a gift of assets owned by both spouses in a marriage.
DEFECIT REDUCTION ACT MAY BE IMPLEMENTED SOON
The future of public health benefits is murkier. For now the Affordable Care Act (the ACA, also called Obamacare) survives, and California officials are working to insulate Covered California and Medi-Cal consumers from cuts to federal funding.
Medi-Cal long-term care eligibility has not suffered significantly as yet. As the year goes on, it may be prudent to watch legislative updates from California Advocates for Nursing Home Reform (CANHR).
Staff at CANHR are following several live bills that spun off from last year's anti-ACA push in Congress. Some of these would cut retroactive Medi-Cal eligibility (important because patients often apply due to a sudden health crisis), restrict benefit recipients ability to keep lump-sum payments, or limit the ability of health care lawsuit plaintiffs to keep court-ordered cash awards if they received publicly funded medical care.
One restriction that we can count on to land sooner or later is a limit on Medi-Cal applicants' and recipients' ability to claim exemptions for home equity.
Formally speaking, current law on the subject is the Defecit Reduction Act of 2005, Public Law No. 109-171 (the DRA). California has not fully implemented this law although 12 years have passed since its enactment. Due in part to rising federal pressure, 2018 could be the year in which California regulators finally give full effect to the DRA restriction on Medi-Cal eligibility for properties that reach an inflation-adjusted value above $750,000. The long-running implementation process, if carried through as expected, would likely apply some protective rules to calculation of home value amounts, and SB 483 (Kuehl), passed in 2008, would add some consumer protections that may be helpful when the time comes.
PROPOSED HR 1082 WOULD LOWER HOME EQUITY CAPS
CANHR reports, however, that there is some chance the current DRA implementation process could be sped up and strictly simplified by HR 1082, labeled the "Medicaid HOME Improvement Act," where "HOME" is an acronym for "Home Owner Maximum Equity." Introduced in February 2017, with no formal further action since, the bill would impose a lower home equity cap of $500,000 by removing an existing provision that allows leeway for high-priced states. If this bill were to be passed, the cap would take effect in six months, or after giving the state legislature a year to pass implementing legislation.
For news on the DRA's implementation -- or its replacement -- CANHR is again a good source for legislative and regulatory updates.
SB833 SIMPLIFIES CHOICES ON CALIFORNIA MEDI-CAL RECOVERY
SB 833 guards against Medi-Cal collections when home that passes from one owner to another without need for a probate process. The choice to place a house into an ordinary revocable trust can therefore give it significant protection against the possibility of a state collections claim for Medi-Cal long-term care bills at the death of the person who received the care. Other methods of transfer without probate include forms of ownership leading to automatic changes in ownership at a death, such as ownership in joint tenancy -- or, for a better capital gains tax advantage, "community property with right of survivorship" -- or, in selected cases (best to seek careful advice), a "Transfer on Death" deed naming a beneficiary.
In a sense it's ironic that the SB 833 bill passed just as national policy turned against the concept of a public duty to maintain the public health. On the other hand, it gives households a timely flexibility of choice: until SB 833, Medi-Cal asset preservation planning often called for transfers of exempt-asset home equity, typically to members of a family's younger generation, that elders might not otherwise choose to make. The SB 833 change means the routine asset preservation advice for a home is simply to change the title to avoid probate, which is prudent for other reasons as well.
SB218- CalABLE ACCOUNT PROTECTIONS
California legislators did not make Medi-Cal collections law any more severe this year -- in fact, during 2017 they enacted a small liberalization: SB 218, signed by the Governor in October 2017, bars Medi-Cal collections claims against CalABLE accounts at the death of a beneficiary. ABLE accounts can preserve limited savings and gift amounts for the benefit of a person who developed a disability before age 26 while easing financial eligibility for public benefits such as Supplemental Security Income. They have been available for some years via programs in some other states; California's CalABLE accounts program may launch as soon as the next several months.
November 30, 2017
The asset planning choices that can be used to invoke SB 833 were prudent for several reasons before this new law passed, so people with revocable trusts may already be positioned to benefit from the new law without knowing it.
Most basically, the new law may protect heirs or beneficiaries where a deceased Medi-Cal patient leaves California assets that have been organized with the goal of avoiding probate. The familiar ways of avoiding California probate are to place a house into a revocable trust, or to provide for an automatic survivorship transfer at death to the owner's or co-owner's spouse, children or other beneficiaries.
The most dramatic way SB 833 changed California Medi-Cal collections law is that, at the death of an elder who received long-term care covered by Medi-Cal, the state can only collect for the cost of care against those California assets of the patient that would count as part of the estate for probate purposes. Collections generally are delayed until after the deceased patient's spouse or registered domestic partner ("RDP") also dies.
No asset planning choice can ever guarantee asset protection, especially since federal law on public medical coverage is in flux. But SB 833 has tremendous promise for helping people who are or may be in long-term care to preserve their assets for the next generation.
In previous years, the Medi-Cal program was able to recoup payments made for Medi-Cal services out of assets remaining after the patient and his or her spouse (or RDP) died – potentially including a family house that had qualified as an exempt asset for Medi-Cal purposes during the patient's lifetime. The main exceptions to recovery were narrow ones for household members considered likely to be dependent, such as a surviving spouse/RDP, a child with an early-acquired disability, or a family member who had the patient's long-term caregiver.
Under SB 833, the Medi-Cal recoupment procedures are more lenient. As of January 1, 2017, Medi-Cal benefits that paid for long-term care services (nursing home costs, Program of All Inclusive Care for the Elderly ("PACE") and other programs designed to help frail elderly people) will be “recovered” – in other words, collected – only by state collection claims against assets that count as “probate assets” after the patient (and spouse/RDP, if any) are deceased.
It is important to review the phrasing of house titles to make sure they have the intended effect. A home might be owned through a trust, or with a spouse/RDP or children in the form of “joint tenancy” or “community property with right of survivorship.” Or, following a pre-2017 style of Medi-Cal planning advice, aging homeowners may have transferred the home to their children while retaining a right to live there – a “life estate.” If these or other asset protection steps have not been taken, then all or part of a home's value may be subject to probate.
For married spouses/RDPs, a plain “community property” title has very different consequences from “community property with right of survivorship”. Also note there is a new “Transfer on Death” title option to give a survival right to a beneficiary, who does not need to be a child or spouse/RDP – but although that option is intended to simplify inheritance, in practice it should be used only with careful review of potential consequences.
If the property left by a deceased Medi-Cal long-term care patient includes probate assets, then after the patient and spouse/RDP are deceased, Medi-Cal can still ask the heirs for the money that Medi-Cal paid to a nursing home, or to a PACE program like On Lok in San Francisco or the Center for Elders' Independence in the East Bay, or to some (not all) of the other Medi-Cal programs for people who receive health care at home.
For more information see our page on estate planning for Medi-Cal.
September 1 , 2015
The need for varied long-term care options is growing as the U.S. population ages. By 2050, the Census Bureau estimates that the population of people aged 65 and older will be 83.7 million, almost double the comparable estimated population of 43.1 million in 2012. An estimated 58 million will need some form of long-term care during their lifetimes.
PACE is a Medicare program, also supported by Medi-Cal in California, for adults age 55 and over living with disabilities. The program provides long-term care for elderly individuals through a managed health care program. It provides comprehensive health services, which Medicare and Medi-Cal partially fund with monthly capitation payments based on each participant’s financial eligibility.
Services at PACE program sites include interdisciplinary assessment and treatment planning, primary care, physician and nursing services, master’s-level social work services, restorative therapies, physical therapy, occupational therapy, and speech-language pathology, personal care and supportive services, home care coordinated from a PACE center, nutritional counseling, meals, transportation, and recreational therapy. Participants are able to continue living independently in their own community. Anyone can leave the PACE program at any time; it is not a contract for life.
In order to qualify for the PACE program, individuals must: (1) be aged 55 years and older, (2) reside in the service area of a PACE program, (3) be certified by their state of residence as meeting the need for the nursing home level of care, and (4) be able to live safely in the community upon enrollment.
If Chris Robinson enrolls in the PACE program, he will more likely be able to stay at his home in San Francisco and receive the care he needs instead of having to move to Chicago. Because he lives in San Francisco, On Lok would be his local PACE provider. Chris' rides to and from his medical appointments would be provided by the PACE program’s van. Likewise, his physical therapy for recovery from his broken leg would be covered. Chris would be able to participate in the adult day services at PACE, eat lunch at the On Lok PACE Center, and also potentially receive further care at his home from visiting PACE staff.
If Chris makes this choice, it may involve some sacrifices from his point of view. Not everyone is willing to give up a trusted current treating physician for a different health team. In addition, it is a major and possibly daunting change in lifestyle to agree to be transported to an adult day health center for care and activities on several days of every week. He would not have to join group activities that he didn’t enjoy, but the program might ask him to come to the center often enough for the staff to see how he is getting along and provide care accordingly. Note that at some PACE centers, it is not necessary to go to the center. Instead, at home care may be provided.
If Chris is eligible for Medicare Parts A and B, but he is not eligible for Medi-Cal, he will have to pay between $3,800 to $4,700 per month for On Lok services. If Chris receives both Medicare and Medi-Cal, he will owe less out of pocket but he may have to pay a “share of cost.” That amount depends on his income, which might include Social Security, a pension, IRA distributions or other income sources.
The typical cost in 2015 for a PACE participant who qualifies for Medicare Part B only is approximately $6,750.52 for San Francisco, $5,408.08 for Fremont, and $4,710.62 for Santa Clara County. Without Medicare or Medi-Cal coverage, the cost is approximately $9,037.99 for San Francisco, $6,665.13 for Alameda County, and $5,738.34 for Santa Clara County.
On Lok does accept participants who qualify for Medi-Cal only, and accepts participants who do not have U.S. citizenship or green cards, but do qualify for Permanent Residence Under Color of Law (PRUCOL) status.
When Congress enacted the Balanced Budget Act in 1997, PACE became a permanent optional Medicaid benefit that states could choose to provide at their option. This authorizing statute integrated PACE services into a single program that can be provided seamlessly to elders who are "dual eligible" for both Medicare and Medicaid services -- provided their states elect to include Medicaid services under PACE. Medi-Cal is California’s version of Medicaid, the health coverage program for low-income individuals that is jointly funded by the states and the federal government. As of February 2012 it was covering close to 7.6 million people in California. California has elected to include support for PACE services as part of Medi-Cal coverage.
Medicaid (Medi-Cal in California) covers most of the costs not covered under Medicare. For example, for nursing home costs, Medicaid pays for around 58%, private insurance covers 24%, and Medicare pays around 15%. Medicare covers nursing home services for up to 100 days following a hospital stay. Medicaid is used for any additional services after the first 100 days.
PACE centers are expensive: capital investments run as high as $2 million to $2.5 million for a program that serves 250 clients. But they are not as expensive as nursing homes.
A PACE participant is likely to receive less expensive care with greater personal independence than he or she would receive by going to live at a nursing home. PACE programs allow aging people with disabilities to reduce high-cost inpatient services and to extend the periods when they are able to live independently with serious health conditions. Nationally, since 2010, fewer than 10 percent of PACE clients have ever entered nursing homes.
The Kaiser Commission on the Future of Medicaid has noted that PACE produces modest savings on out-of-pocket costs to patients. The centers emphasize coordinated care and efficient management of insurance. Given the flexibility to use pooled funds from Medicare and Medicaid, private insurance, donations and fees, PACE programs have a variety of methods of meeting client needs while keeping costs stable. This resource is a valuable option for many people seeking long-term care.
December 1, 2014
Imagine two people, Grace and Steve Robinson, of Chicago, receiving a call on Monday morning from a hospital in San Francisco concerning the condition of Steve’s father, Chris. It appears Chris suffered a broken leg and experienced head trauma when he was walking in his suburban neighborhood. He is a seventy-five year old man who suffers from Alzheimer’s disease. Chris forgot the route back to his house; he ended up walking down an unfinished area of the road, and broke his left leg. Recovering from his leg injury would require months of rehabilitation.
Four years ago, when Steve’s mother died, he and Grace offered to pay for live-in help to take care of Chris in their home and arrange for health care in Chicago. Chris resisted his children’s efforts to move him from his home in San Francisco for the following reasons: he loved his home and the close-knit community he had built around him. Chris also wished to remain autonomous and be able to cook and clean without the help of a third party. After he had suffered the broken leg, however, Chris realized that he needed additional assistance. He was thinking that he needed to move in order to get the help that he needed.
Chris, like millions of Americans, needs long-term care services. According to the U.S. Department of Health and Human Services, long-term care is a range of services necessary to meet personal care needs. Long-term care does not have to be medical in nature, but can be assistance with the basic personal tasks of every day life. These activities range from bathing, dressing, eating, and caring for incontinence. It is estimated that 70% of people turning 65 can expect to use some form of long-term care during their lives. While one-third of today’s elders may never need long-term care support, 20% will need it for longer than five years. On average, women need a little over three years of long-term care and men require a little over two years of care.
We'll be writing about a long-term care program called Programs of All-Inclusive Care for the Elderly (PACE) in future posts, that is useful for people like Chris.
Nothing like September for getting on with deferred projects. One of these for us, and possibly for you as well, has been to take a closer look at estate planning for computer data and online accounts.
Digital inheritance is in flux in terms of legal requirements, corporate practices, and levels of privacy available to the consumer. In the absence of specific California laws, general inheritance and estate administration principles have to govern the handling of deceased persons' computers, files and accounts. How such general principles apply has not yet been fully worked out.
At our office we are not specialists in the legal or technical aspects of personal privacy. We cannot promise any specific outcome for possible estate planning steps mentioned here. We don't recommend any particular services or companies in the oddly burgeoning business of digital "vaults" and "message from the grave".
What we can do is to offer some basic suggestions and cautions about digital legacies. These suggestions should not be taken as legal advice; if you have specific computer-related arrangements in mind for your estate plan, you should seek legal advice about your particular situation.
Since digital estate planning is a new and changing area, these are only suggestions. We can't say they're accepted practice because there's no such thing as yet. There is, however, common sense. It's important common sense that you should provide password information to your successors so that, if they have a legal right to read your files or post a farewell message on your Facebook, they won't be held up by trouble hacking in.
We've decided to share a resource with the public that we created some time ago for internal use. It's our links page for Web sites at the complex intersection of estate planning law, seniors' rights, and public benefits. For convenience it includes some general-purpose starting points for free legal research as well.
This past year we sent out a link to the page in one of our private client newsletters, but until now we haven't provided access to it for the general public.
One reason we've hesitated is, a page with links to so many different kinds of Web sites is subject to a lot of your-mileage-may-vary types of warnings. Here they are:
The links on our resource page go to all kinds of sites for all kinds of entities, including government agencies, law libraries, and activist organizations. For your protection, always do your own independent checking and critical thinking about whether to trust any law-related Web site, even if reached it by clicking something on our page.
Further warnings: This Web site and the material on our links page is not legal advice. Material on either this page or the links page is no substitute for legal assistance tailored to your particular circumstances. The links are NOT meant to provide a comprehensive review of any legal subject, we're not responsible for the information or suggestions you might find at any of these links, and just because a site is intended for legal self-help doesn't mean that trying to be your own lawyer is a good idea. It often isn't.
Having said and heartily meant all that, we hope the site is helpful. Here's the link.
People agree to things too easily in pressured settings. During the front-desk formalities at an emergency room, for example, it can almost seem foolish to insist on reading and understanding every paper before signing it.
This is a major reason why estate planners urge people to prepare advance written instructions for medical care in case of emergency or incapacity. An important function of an Advance Health Care Directive is to protect its creator from having to make important, potentially life-ending decisions in unfamiliar, authoritative settings.
However, some concern now exists that, if a real crisis hits a patient, a typical Advance Health Care Directive may not be clear enough. For example, paramedics arriving at a house might not understand whether to start CPR, or a junior nurse in a hospital might not know whether to give antibiotics or place an IV line.
To answer this concern, the California legislature has developed simpler, clearer, grimmer documents known as "Requests Regarding Resuscitative Measures." The oldest document of this type is the simple “Do Not Resuscitate” or DNR order. As of January 2009 the Legislature added the POLST, or “Physician Orders for Life-Sustaining Treatment”. It is now addressed in the California Probate Code provisions beginning with Section 4780.
POLSTs and DNRs can be helpful in enforcing a seriously ill patient's wishes, especially for someone who wants to die at home without the physical violence of CPR or the bureaucracy and disruption of an ambulance to the hospital. However, they should be approached with care, particularly during admissions to hospitals or nursing homes. In such contexts, people could literally sign away their lives without knowing it.
Between the two kinds of resuscitation forms, a DNR form seems less likely to be signed by accident: it's a simple form, and the words "Do Not Resuscitate" are clear. A POLST, on the other hand, is at a scary middle level of complexity: it’s detailed enough to confuse a patient about its possible meaning, yet so clear in its instructions to a trained medical technician that it might be obeyed without even beneficial kinds of second-guessing.
So it's especially scary to think that a POLST might be included in a mind-numbing stack of paperwork to be signed in a situation like a nursing home admission, where patients may feel afraid or socially awkward about asserting their real wishes, or without sufficient information or discussion about the amount of authority that a POLST carries.
It is a good idea for some people to sign a POLST, but here are things to know about POLSTs before agreeing to them:
In other words, the basic rules apply: read everything before deciding whether to sign it, and don’t sign if you feel pressured, ill, or uncertain. A POLST may be helpful at some time in your life, but if you choose to fill out and sign one with your doctor, you should take time to understand the form fully and make sure the decisions it expresses are entirely yours.
This summer's health care debate took a surreal turn when conservative speakers, using phrases like "death panels," projected their fears of totalitarian government onto a group of ordinary medical documents that include living wills and California's more detailed Advance Health Care Directive.
The main (if not only) occasion for their fury was a proposal to create a small Medicare fund that would have paid doctors for the time they spent helping patients to prepare "living wills." The idea was to help people, if they wished, to record their own highly individual decisions in advance about what type of care they wished to receive, or not receive, if they became terminally ill. Nobody was going to force people into these consultations. But somehow, in this summer's debate, a program that would have helped people assume more control over their own treatment became portrayed as its own opposite -- as a pressure campaign to save money by urging patients to accept a speedy death. The proposal has been dropped from the Medicare bill, and the national political focus has moved on, but some damage may have been done to the reputation of an essentially benign type of document.
Living wills have existed for many years as ordinary, conventional tools in medical and estate planning. A living will is a useful, safe document so long as it is created by voluntarily and correctly filling out a form document that was drafted with the patient's interests in mind. (Note: the Physician Order for Life-Sustaining Treatment (POLST), a new type of form allowing doctors to withhold specific types of treatment, is worth approaching with caution. We’ll discuss POLSTs in a later article.)
Documents such as the California Medical Association's detailed Advance Health Care Directive can relieve family members and medical providers from the uncertainty of guessing when a person who is near death would have wanted to be kept alive. An important purpose of a health directive is to prevent hospital administrators and insurance bureaucrats – or intrusive relatives – from “playing God” with the lives of patients. Documents of this type got more attention nationwide following the drawn-out and highly publicized death of comatose Florida patient Terri Schiavo. Many people decided that beyond a certain point of incapacity, they would not want to be the subjects of dramatic or cumbersome medical interventions.
More detail on the actual proposals underlying last summer’s controversy is available in this Washington Post discussion transcript. The discussion clarifies that Sarah Palin, who introduced the notorious "death panels" phrase, may in part have been thinking about a separate group of proposals to review the costs of publicly funded treatment. These other proposals included a call for an advisory board on limiting Medicare costs. Certainly medical cost-cutting pressures raise important moral concerns, whether they're imposed by public agencies or by private insurance companies, but those concerns exist for all patients, whether or not they write living wills.
As part of our office’s estate planning services, we help clients to fill out Advance Health Care Directives using the version provided by the California Medical Association. Copies of the CMA form in English or Spanish can be ordered directly from CMA at www.cmanet.org or at 1-800-882-1262. CMA provides an online sample of the document, including its detailed explanatory section.
Documents that explain people’s end-of-life wishes have been much in the news, yet little explained. Following is some basic information about end-of-life decision making.
What are the kinds of end-of-life instruction documents?
A Living Will can express your preferences regarding each of the methods of artificial life support, or you can use this document to reject all artificial life support if you wish to die a natural death. (California law now prefers Advance Health Care Directives for this purpose.)
A Durable Power of Attorney for Health Care allows you to name an “agent” to make health care decisions for you in case you are unable to make your own decisions. You can choose a backup agent to act if your first choice is unavailable.
An Advance Health Care Directive, in the popular form provided by the California Medical Association, allows you to express your wishes regarding life support and other issues.
A Physician Order for Life-Sustaining Treatment (POLST) is a new type of form allowing doctors to withhold specific types of treatment, especially for people who are seriously or terminally ill. We suggest that patients exercise caution in considering whether to sign a POLST.
What is the most widely used health care instruction form in California?
The California Medical Association (CMA) publishes an Advance Health Care Directive Kit that allows you to: 1) Create a Durable Power of Attorney for Health Care 2) Choose among prepared statements, or write your own statement, regarding which life support methods (if any) shall be used in your care, for how long; and 3) State whether you wish to be an organ or tissue donor. The CMA Advance Health Care Directive Kit includes instructions and explanations. The forms are $6.00 for members of the public. You can order one at www.cmanet.org, or by calling 1-800-882-1262.
What are other sources of information about end-of-life decisions?
The California Medical Association Web site, at www.cmanet.org, provides information about Advance Health Care Directives. A nonprofit organization called H.E.L.P. provides a detailed Web site at www.help4srs.org with suggestions and questions to help seniors with end of life decisions and funeral planning.
Should I Redo My Existing Advance Health Care Directive or Durable Power of Attorney for Health Care?
If your form was executed before 1992, then you should have another one executed. Durable Powers of Attorney for Health Care executed before 1992 expire seven years after the date of execution.
If you executed a CMA Durable Power of Attorney for Health Care before 2000, be aware that any statement you made about life support will not be considered a mandatory statement. The current CMA forms contain health care directions that your agent(s) must follow if instructed to do so. By contrast, the pre-2000 CMA forms contain life support statements that are merely discretionary guidelines for the agent.
You may also want to check whether your current health care directive or estate planning papers include an information release under the Health Insurance Portability and Accountability Act (HIPAA) that allows your agent(s) to receive information from your doctors about your medical condition and mental capacity.
Do I Need a Lawyer to Help Prepare my Advance Health Care Directive?
The CMA’s forms are designed to be used without the assistance of a lawyer. A detailed explanation comes with the Advance Health Care Directive Kit. A lawyer may be able to help you write a more detailed statement in your Directive, to make sure your wishes are stated clearly, to check to see that the form is correctly completed, signed and witnessed, or to explain about privacy laws.
Recent increases in federal estate tax exemption amounts have changed the best practices in trust drafting for married couples who have assets well below the current limits. Many older existing trusts were drafted with lower exemption amounts in mind. If both spouses/RDPs are still living, such trusts should be restated to reduce potential burdens on the survivor after the first spouse or partner is deceased.
As you may know, the federal estate tax exemption amount is the maximum value of total assets a person may own at death before inheritance taxes apply (that is, assuming the person made no large gifts during life). As of 2009, the exemption amount increased to $3.5 million. Current law calls for the exemption amount to become unlimited in 2010 and then fall back to $1 million as of 2011. However, legislation before Congress may stabilize the amount at $3.5 million.
Before the early 2000's, typical 'bypass' or 'A-B' trusts used to provide that, upon the first spouse's death, assets were required to be divided into separately taxable sub-trusts. The intention then was to keep each sub-trust below the federal estate tax threshold, which for many years was as low as $600,000. If a trust that still provides for these mandatory divisions is allowed to take effect following the death of a spouse, it can impose unnecessary burdens on the surviving spouse with no corresponding advantages under current tax laws.
With the recent changes in tax laws, older trusts should be re-examined and possibly redrafted. For more details, see our "Trusts for Married People" discussion.