ESTATE PLANNING: Revocable Trusts – How Old are your Documents? Review and Revise Now!
For those who have revocable trusts, they often feel that they are all set. They got them done years ago but haven’t looked at them since. Should they be reviewed and revised? Yes. When? Now.
Years ago, the estate tax was the reason for couples executing revocable trusts. Each person received credit for $600,000 to pass along during his/her lifetime or at death without any estate tax being due. The problem was that if your spouse received all the assets upon the death of the first spouse, that $600,000 credit was lost [“use it or lose it”]. The surviving spouse ended up with only his or her $600,000 credit and often larger estates would be taxed when they passed on to the children at the death of the second spouse.
At that time, the revocable trust was used to avoid such a scenario. With the trust, the first $600,000, or credit amount, was put into a Family Trust. Since it wasn’t a transfer to a spouse, it could use the $600,000 credit. The Family Trust or Credit Shelter Trust was available to the surviving spouse in the event that he or she needed it; however, it was usually the amount that ended up being passed along to the children. The remainder of the estate was passed to the surviving spouse in the Marital Trust. The Marital Trust was not taxed at the death of the first spouse, but was added to the surviving spouse’ net worth. Then when the surviving spouse passed away, there was the opportunity to take another $600,000 credit. Thereby gaining the advantage of both credit amounts, worth $1.2 Million.
Many trusts were written this way over the years and they have remained this way. The problem today is that with the last tax reform passed in late 2017, we each now receive a $5 Million credit. Therefore, unless a couple has assets of $10 Million, there is no need for the above complicated tax planning.
Additionally, as written, these Trusts would now require that the first $5 Million be kept in the Family or Credit Shelter Trust. There would essentially be nothing to fund the Marital Trust and nothing to absolutely pass along to the surviving spouse without restrictions.
For the average individual, these trusts today are unnecessarily complicated and unneeded. If this is the language of your Trust, it is time to see an estate planning attorney to have your Trust amended. The complex portions will be deleted and more simplified language inserted. Additionally, there have been many changes in the laws over the years, including a new Probate Code and a Trust Code in Michigan.
If your trust documents are this old, it is probable that there are additional changes that need to be made. If you have trust provisions for your minor children and they are now in their 30’s, it is time to have the documents reflect the reality of your circumstances and theirs. Many of the individuals that you may have named as Successor Trustees may no longer be appropriate (if even alive).
The best practice is to get these Trusts updated at once. Take advantage of the opportunity to simplify the documents and have them reflect your real-life circumstances and preferences.