Estate tax is no longer a consideration for many of us. Under current law, each individual can transfer over $11 million to his or her heirs estate tax free. Notwithstanding the fact that the current estate tax laws are only in effect until 2026, most practitioners expect that the estate tax exemption will exceed $5 million for the foreseeable future.
In the not so distant past, a married couple with a modest estate had to create a joint revocable trust, which would be divided at the first spouse’s death into two or three sub-trusts, in order to take advantage of both spouses’ estate tax exemptions. (In 2001, the exemption was only $675,000, so the use of the joint trust permitted $1,350,000 to transfer to heirs estate tax free.) Under current law, a married couple could transfer over $22 million estate tax free even without using a joint revocable trust. However, if the combined assets of a married couple are $11 million or less they can now simply leave all of their assets to the survivor at the first death without having to bother creating complicated sub-trusts, and still transfer their entire estate at the second death without paying any estate tax. The question is: Who gets the money at the second death?
Often, people who were happily married and lose a spouse will remarry. Even if the new spouse is not a gold-digging bimbo or “bimboy”, it may not be the best plan to leave the entire estate under the unrestricted control of the survivor. It may be many years between the first and second death. Memories fade and new spouses (and their lazy, rotten children), can be very compelling and persuasive in convincing the survivor to alter his or her estate plan.
By using a joint revocable trust, spouses are able to provide that the survivor will have use of all assets at the first death, if he or she needs them, but at the death of the survivor, the remainder of the deceased spouse’s one-half of the community assets and his or her separate property will pass to the beneficiaries specified by the decedent (most often the children of the original spouses), and not to the bimbo or the bimboy, or to the lazy, rotten children of the new spouse. Don’t forget that the survivor can still leave his or her one-half of community property and all of his or her separate property to whomever they wish, including the new spouse or their favorite charity. And, an additional benefit of holding the deceased spouse’s property in trust for the survivor, rather than leaving it to the survivor without restriction, is that those assets will have some protection from the survivor’s creditors.
Estate taxes may be a thing of the past for many of us. Gold-diggers will live forever. Beware.