The current environment with no estate tax seems to be causing a bunch of unintended consequences (as if that’s a surprise!). Here’s another…

A standard, tax-driven Michigan estate plan for a married couple, put together by many advisers, uses what are called “A-B” trusts. Upon the death of the first spouse, the single trust may split into the decedent’s trust and the survivor’s trust (sometimes called the family trust and the marital trust). The amount in the decedent’s trust is usually equal to the federal estate tax exemption. The remaining assets go to the survivor’s trust for the surviving spouse’s benefit.

The problem with this setup in 2010 is that a deceased spouse may unintentionally give the surviving spouse nowhere near the benefit they intended. . . or even nothing! With no federal estate tax, all assets pass to the decedent’s trust under the typical language, leaving nothing for the survivor’s trust. The decedent’s trust most likely benefits the surviving spouse, but probably has many more restrictions than the survivor’s trust. For example, the surviving spouse may only be an income beneficiary with the remainder going to the children.

Although 2010 is drawing to a close soon, this issue emphasizes the importance of scheduling a review of your current plan or the plan of your family and friends, because even though the estate tax is sure to change, there are so many other aspects of your plan which are affected by this constantly changing legal and economic environment. If there’s ever been a time to work with an attorney that has a membership/maintenance plan it is NOW – that way you don’t get stuck with a bill every time Congress changes the law in a way that may harm your planning.  Don’t be caught by surprise!

And don’t even get me started on the fact that Congress still hasn’t made its mind up on what will happen next year (let alone this year).  We could well see the exemption go down to $1 million dollars.  I know what you’re saying . . . Mike that is a LOT of money.  You’re right, it IS a lot of money.  Think about this though – that amount includes everything you own including the value of life insurance…yes, life insurance.  That puts a lot of people in a position that requires considering tax planning.

If you, your family or your friends need to review your plan or make sure that you have a plan in place in these turbulent times (rather than the State’s plan for you), contact us at 616-827-7596 and mention this post for a special discount.

Michael Lichterman is an estate planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, and family owned business succession – and he is privileged to do so from a Christian perspective.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.