Conference on Estate Planning Focused on Portability and Trusts

Law Firm Newswire



Florida confab of lawyer, accountants, etc. discuss new law’s implications.

Fairfax, VA (Law Firm Newswire) February 28, 2014 – As the annual Heckerling Institute on Estate Planning reconvened in mid-January in Orlando, Fla., the eagerly anticipated conference of some 2,900 attendees was particularly interested in discussing the impact of recent changes in tax law. And the major engine for change in how lawyers and accountants will approach estate planning is the American Taxpayer Relief Act of 2012.

The buzzword for estate planning since the passage of the new law is so-called portability, which allows widows and widowers to carry over the exemption from estate tax of the spouse who most recently died and combine it with their own. Current rates permit married couples to transfer tax-free $5.34 million individually for a combined savings of $10.68 million. And that rate, which is adjusted for inflation, will increase over the coming decades.

Prior to the implementation of portability, which the new law made permanent from an interim law passed in 2011, whenever a second spouse died any amount above the exempted amount with the exception of charitable donations would be subject to taxation. Thus, portability now prevents the loss of the first spouse’s exemption.
“The old legal context required careful estate planning in order to try to preserve as much of the first spouse’s exemption as possible,” said Lisa McDevitt, a prominent Fairfax, Va., estate planning attorney. “Bypass trusts were a tried-and-true means of maximizing use of the spousal exclusion.”

But another tax-planning vehicle that was much-discussed at the conference is the so-called contingent qualified terminable interest property trust. That mouthful of words is commonly known as a QTIP trust, and it has a close cousin called a Clayton QTIP, so named after the 1992 Fifth Circuit Court of Appeals case Clayton v. Commissioner.

A QTIP trust, traditionally employed to protect assets for children in case a surviving spouse remarries, permits a spouse to place his or her assets into a marital trust, whose income the surviving spouse may draw upon. But once the surviving spouse dies, the assets within the trust pass on to whomever the first spouse designated as the beneficiary.

By contrast, the Clayton QTIP permits a deferral of the decision on how to apportion the estate between a bypass trust and the marital share until the first spouse has passed away.

Ironically, the advent of portability has not really simplified estate planning, given the availability of all of the various estate-planning vehicles and depending on the size of the estate.

“Estate planning in many cases still requires an experienced attorney to maximize benefits available under the law and avoid any confusion the new law may have created,” McDevitt said.

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