Marital Trusts: Deciding When to Update

January 29, 2018

In recent years, there have been significant estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. changes in Wisconsin that may impact marital trusts. Married couples with an an older marital revocable trustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated. are advised to have their trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. reviewed. In this article, our estate planning attorneys explore why updating an older marital trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., more formally known as a marital revocable trustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated., maybe in a family’s best interest.

Older Marital Trusts Maybe Overly Complex

Many marital revocable trusts were set up to divide into two separate trusts when the first spouse passes away. This was a common best practice because the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. had been set low enough to impact many married couples.

However, federal estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. now impacts fewer people as the federal government increased the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. limit multiple times over the past two decades. Additionally, Wisconsin has eliminated its estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax..

One of the ways to avoid the federal and Wisconsin estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. was to fund a “credit shelter trust” upon the first spouse’s death. A “credit shelter trust” can be referred to by many names, including a marital trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., family trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., and an A/B trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. A “credit shelter trust” effectively doubled the amount that a married couple could pass estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. free to their children or other beneficiaries. These trusts were set up to divide into two separate trusts upon the first spouse’s death. As discussed below, this division may no longer be in your family’s best interest.

Out-of-Date Revocable Trust: Detrimental to Your Goals?

Since most clients hire us to make things as easy as possible for their children or beneficiaries, an older complex “creditor shelter” revocable trustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated. may no longer be wise. The federal estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. has increased over eighteen times in the last two decades. Therefore, most couples and even individuals who may have been subject to paying estate taxes may no longer have to worry about avoiding estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax..

As a result, many married couples have been left with overly complex, unnecessary marital trusts. These revocable trusts mandate the division of the couples assets into two trusts when the first spouse passes away. With the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. changes, this presents significant challenges as dividing these trusts is complicated and expensive.

Dividing these type of trusts requires a lot of work and expense, including a complicated 706-estate tax return. The cost and time to divide these trusts into a survivor’s trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. and into a “credit shelter trust” can often be avoided.

Moreover, upon the death of the first spouse, the credit shelter trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. must file a separate income tax return every year that the surviving spouse is alive. This made sense when the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. was as high as 55% and applied to assets as low as $600,000. With the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. increasing so much, it’s often less advantageous for married couples to have a “credit shelter trust”.

Federal Estate Tax Law Reduces Need for a Complex Trust

Federal law now allows a spouse to double the amount sheltered from estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. without the use of a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. Called “spousal portability”, this new law allows a spouse to double the amount that can be sheltered estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. free, even without a “credit shelter trust”. This new law further reduces the reasons for maintaining an older marital trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..

The Updated Revocable Trust

For many clients, the goal is to make things as easy and inexpensive as possible upon death. A revocable trustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated. or joint revocable trustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated. that does not split into two separate trusts when the first spouse dies can achieve that goal. If there are no significant reasons to split into separate trusts, then our estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. lawyers can achieve simplicity and cost-effectiveness by updating or replacing an older marital revocable trustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated.. We can also discuss possible advantages to retaining a more complex trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. in certain situations.

We Have Updated Hundreds of Marital Trusts

Over the years, we have updated older marital trusts to help our clients take advantage of changes in tax and other laws. We have experience reviewing older trusts and recognizing when and how best to update. We can more accurately predict where updates, revisions, or new trusts willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. help our clients save time and money. If you have a marital trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. over five years old, please contact us for an appointment to review and to discuss your planning needs.

Call us today on 262-658-2181