The 2017 tax reform increased the amount a married couple can shelter from estate taxation. Now a married couple can give away over $22,000,000 without paying a penny in estate taxes.
In the past, California trust attorneys commonly prepared A-B trusts to maximize federal estate tax savings. After the death of the first spouse, that spouse’s share of the assets would be funded into a bypass trust. Generally, that trust would be established to avoid paying estate taxes on the death of the first spouse and second spouse.
If the bypass trust was not funded and instead was given to the survivor, upon the survivor’s death the larger estate may have been subject to an estate tax.
Now, because families are able to shelter $22,000,000, a more flexible trust is often preferred. With proper planning, one can establish a very simple and flexible trust to avoid the post death administration headaches and costs associated with an A-B trust.
The flexible trust that I frequently prepare allows the surviving spouse to sit down with tax professionals after the first spouse dies to discuss options on a variety of tax issues.
If the tax benefits provided by the A-B trust are needed, they can be implemented. If not, the survivor can carry on with a very simple trust and administer it with very little cost.
The significance here is that establishing an A-B trust after the first spouse’s death is now an option, not a requirement.