Estate tax savings with a Trust under the current law

The question regularly comes up as to why a married couple should create a trust that splits into one or more subtrusts on the death of the first individual. While this discussion can be a rather lengthy one, the answer is that the internal revenue code does not currently allow the first spouse's estate tax exemption amount to be added to the surviving spouse's exemption amount for purposes of calculating the estate tax liability of the estate. Therefore, if a family wants to use both spouse's estate tax exemptions, they must create one or more irrevocable trusts on the first individual's death to use that person's exemption, and then on the surviving spouse's death, they may use their exemption amount on the remaining property that is contained in their taxable estate. If a family does not have an estate that is greater than one spouse's estate tax exemption amount (currently 3.5 million per person), then a trust can be set up that gives the surviving spouse access to and absolute control over all of the assets held in the estate. However, if the estate is greater than 3.5 million, then the splitting of the trust into two or three trusts on the death of the first person is necessary to maximize the two exemptions that are available to them.

One other reason that will also be investigated in a future post is that if the trust does not split into different trusts, then the surviving spouse may change the disposition plan over all of the assets. This often occurs when the surviving spouse remarries and there may be other children or beneficiaries that become people to whom the survivor wants to distribute assets to. By setting up a trust that becomes partially irrevocable on the death of the first spouse, there is certainty that the deceased spouse's wishes will be fulfilled with at least half of the estate.

In summary, if you have an estate that is worth over 3.5 million in 2009, then you should consult with your attorney to determine if you have an appropriate level of tax planning built into your revocable trust. More will be written on this topic in the future as we see what changes to the estate tax law the Federal Government makes.

New Location for Next Month's Asset Protection Society Meeting

For those of you who have contacted me about the next Asset Protection Society meeting, here is an update. We have had such a large response that we are going to change the location of the meeting. If you would like to attend and have not yet RSVP'd with me, please contact me to do so. I will then provide you with the new location and answer any questions that you may have.

Next Asset Protection Society Meeting

The next meeting of the Asset Protection society in Orange County will be on Tuesday, September 22 at 7:00 PM. The speaker will be David Shaver of Ferruzzo and Ferruzzo, LLP. David Shaver's bio can be found here: ( http://www.ferruzzo.com/staff/dshaver.asp ). David is the partner in the firm that handles all of our trust, estate, and fiduciary litigation and he will be speaking to the CPA's, Financial advisors, and any other advisor who regularly works with trustees and others who are in fiduciary roles such as these about common mistakes that people in these positions make that generate liability not only for the trust, estate, or other entity, but also for the person individually and possibly for the other advisors.

If you advise fiduciaries, trustees, executors, administrators, conservators, guardians, or anyone else who has these increased duties, then you will not want to miss this presentation. Individuals who are acting in these capacities for family members may also want to attend as there will be a time for questions and answers on what they should and should not be doing in these roles. If you are interested in attending, please feel free to contact me at mziebold@ferruzzo.com to RSVP for this event.

Speaking at NBI Seminar in Irvine on December 9, 2009

I have been asked to speak at a continuing education event on December 9, 2009, in Irvine, California on the Top Ten Estate Planning Techniques. This is held by National Business Institute (www.nbi-sems.com) and it should be a good event. I will be speaking on Charitable Giving and Grantor Retained Annuity Trusts. More information on this event will be published later as I am told where it will be held.

Other websites

Some people have asked where they can find out more information about my background and other things about me. You can find more information on these websites:

http://www.ferruzzo.com/staff/mziebold.asp

http://www.linkedin.com/in/markziebold

http://www.avvo.com/attorneys/92660-ca-mark-ziebold-119392.html

http://twitter.com/markziebold

http://www.naymz.com/search/mark/ziebold/1800194

http://lawyers.justia.com/lawyer/mark-allen-ziebold-79731/

That should get you started if you are wondering if I would be a good fit to work with on your tax or estate planning matter.

3rd meeting of the Orange County chapter of the Asset Protection Society

Tomorrow evening at my office we are hosting the third meeting of the Orange County Asset Protection Society chapter. If you are interested in attending or would like to find out more about our meetings feel free to contact me at mziebold@ferruzzo.com

Different uses for Life Insurance and Life Insurance Trusts

I had an interesting discussion with a client the other day about using life insurance for different planning techniques that you would normally perform with a different planning vehicle. For example, many of my clients retain my Firm to create private foundations or public charities so that they can govern the use of those contributed funds and obtain an income tax deduction. Many people use private foundations to accomplish this but then later shut them down when they realize how many rules there are from the IRS and how they are limited in running the organization. This specific client decided that the deduction was not the main goal, but to create a vehicle that could be used for many years by family members to facilitate gifting to other charities.

Based on this idea, we started discussing how an Irrevocable Life Insurance Trust would fulfill these goals, and at the end of the discussion the client said that of the two options where he or his family would retain full control over the assets within the trust, he was leaning towards using an ILIT instead of a private foundation. If the drafting attorney spends some time developing appropriate trustee provisions and ways for other family members to get involved (as co-trustees or on an advisory committee), you can do much of the same things with the proceeds of the life insurance trust (just without the income tax deduction).

If a client decides to be extremely creative, in many situations I will recommend that they consider using a properly drafted ILIT to further those goals or to be the main vehicle to fulfill them. Think about using Life Insurance to create a foundation type organization that is not subject to the rules of private foundations (but not free from tax), planning for death taxes in the traditional ways, using cash value in an ILIT to purchase assets from an estate (best for rapidly appreciating assets), Using insurance to fund a Health and/or educational trust in a jurisdiction like Delaware with a long rule against perpetuities so that the funds will always be available for the purposes in which you set them up for.

The client left my office with a new understanding that insurance is not just for the protection of your family anymore, but it is also a very cost effective way of leaving a legacy for yourself or your family in one or more different ways.