12th Nov 2014

With the introduction of portability, do you still need a credit shelter trust or “CST”?  It is obvious that estate tax law has changed in leaps, bounds, and occasional crashes backwards over the past 20 years (2010 still creates nightmares for estate planners) as Congress is under more and more pressure to increase revenue without increasing tax rates.  Something like portability, which would be taking away something few have benefited from, is an easy target.

2)      Remember that the GST (generation skipping transfer tax) exclusion is not portable.  Therefore, persons planning for multiple generations may still need the advantages of a CST.

3)      If the estate consists of high growth assets, the CST removes growth from the surviving spouses estate, portability does not.

4)      If the surviving spouse remarries, they can only use the portability of the most recent marriage.  This means if Susan remarries after Bob’s death and her new husband, Joe, dies having gifted all of his unified credit away during his lifetime, Susan now has none of Bob’s unified credit to use and none from Joe either.

5)      Some states have their own estate taxes and most do not have portability for state imposed estate taxes.

6)      Trusts do many other good things.  Trusts can help protect assets against creditors with spendthrift provisions.  Trusts can give a clear means to take care of surviving spouse during incompetency.  If the surviving spouse remarries, the assets in the CST can be protected against the claims of the new spouse and preserved for the children of the first marriage.

7)      Portability must be elected on a timely return, even for estates under the filing threshold.  It is easier to fall into that trap than if a trust is required to be put into place.

These are all good reasons to continue using a CST as part of your estate plan.  But this does not mean you should not update your documents.  There are other tax considerations as well as new opportunities under trust law to discuss with your estate planning attorney. Consider these points about a CST when you talk to your estate planning attorney to start a plan or update an existing one.

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