Estate Tax Planning in California

 Los Angeles, Calabasas, Westlake Village and San Fernando Valley, CA Estate Tax Attorney

One area that all married couples should revisit is their estate tax planning.


Do You Still Have ‘AB Trust’ Planning in Your Estate Plan?

If you’re married and you haven’t had your estate plan reviewed since before January 2, 2013 by an experienced estate planning lawyer, then pull your documents out of the drawer, dust them off, and take a closer look at their trust provisions. Do they contain terms such as ‘Marital Trust,’ ‘QTIP Trust,’ ‘Spousal Trust,’ ‘A Trust,’ ‘Family Trust,’ ‘Credit Shelter Trust,’ or ‘B Trust’? If so, then your revocable trust contains estate tax planning provisions that were required in most estate plans before January 2, 2013. Now, you may not need this type of planning since the federal estate tax exemption has been fixed at $5 million per person adjusted for inflation (the exemption was $5.34 million in 2014, $5.43 million in 2015, and is expected to increase to $5.45 million in 2016).

Aside from this, the federal estate tax exemption is now ‘portable’ between married couples (including legally-married same sex couples), meaning that when the first spouse in a married couple dies, the survivor may be able to use their deceased spouse’s unused estate tax exemption and so, without any complicated estate tax planning, pass $10 million+ to the deceased spouse’s heirs and the survivor’s heirs without paying the federal estate tax.


Do You Still Need ‘AB Trust’ Planning in Your Estate Plan?

If the combined estates of you and your spouse are under $5.45 million, then you probably don’t need to worry about federal estate taxes (at least for now). But even with the increased exemption and portability, you may still want to include ‘AB Trust’ planning in your estate plan.  ‘AB Trust’ planning may still be a good strategy for you, depending on several factors, including:

  • Does your state still collect a state estate tax? If your state still collects a state estate tax and your state’s exemption is less than the federal exemption, then ‘AB Trust’ planning (or perhaps ‘ABC Trust’ planning) may be required to defer payment of both state estate taxes and federal estate taxes until after the death of the surviving spouse. (Note that this will not be the case in Delaware and Hawaii since the exemptions in these states currently match the federal exemption. The exemptions in Maryland and New York will also match the federal exemption in the future, but not until 2019.)
  • Do you and your spouse have different final beneficiaries of your estates? If you and your spouse have different beneficiaries of your estates (for example, you want your estate to ultimately pass to your children while your spouse wants their estate to ultimately pass to their siblings or their children), then ‘AB Trust’ planning may be necessary to insure that these final non-tax estate planning goals of each spouse are met.
  • Do you and your spouse want to create a dynasty trust that will continue for many generations? Even if the combined value of the estates of you and your spouse is under $10.9 million (for deaths occurring in 2016, this amount adjusts annually for inflation), ‘AB Trust’ planning may be appropriate if you want to take advantage of both spouses’ generation-skipping transfer tax (‘GSTT’) exemptions to create a lasting legacy for future generations. The GSTT exemption is not portable between married spouses, so the only way to effectively use it for long-term dynasty planning is through a trust.
  • In other words, if the combined values of the estates of you and your spouse is $10.9 million or less, then you may want to keep ‘AB Trust’ planning in your estate plan so that you can fully use each spouse’s GSTT exemption for a dynasty trust for the benefit of your children, their children, and their children’s children.

In addition, there are many other factors and options to consider that an experienced estate planning attorney can explain.


What Should You Do?

If you’re married and your current estate plan includes ‘AB Trust’ planning but you’re not sure if you should keep it in your plan, then make an appointment with an experienced estate planning attorney to discuss all of your options.