Because of the very high unified credit amount ($5,000,000 in 2011 and 2012) and the emergence of portability (the ability of a surviving spouse to utilize the unused unified credit amount without use of a credit shelter trust), credit shelter trust planning has been called into question.
But, there are 7 important reasons why you still need a credit shelter trust. And, please note that the credit shelter trust is also referred to as a family trust, B trust, or by-pass trust. You may see these terms in other writings. They all mean the same thing. Its the trust that holds the deceased spouses unused unified credit amount.
1. The unified credit returns to only $1,000,000 in the year 2013 (and beyond)
2. There is no portability in 2013 and beyond
3. Although there is portability in 2011 and 2012, the concept is fraught with ambiguities inviting litigation and unhappy, messy consequences. For example, consider a second marriage situation wherein the executor of the deceaseds estate refuses to file a federal estate tax return to allocate unused unified credit to the surviving spouse. Messy.
4. There is no portability for the generation skipping tax and, if it is not allocated to the credit shelter trust, it likely will be lost.
5. Assets in the credit shelter trust can grow and grow and grow and will not be subject to federal estate tax when the surviving spouse dies.
6. Assets in the credit shelter trust have asset protection so they cant be taken in a divorce, bankruptcy, malpractice case, car accident or slip and fall litigation, or any other type of law suit.
7. Children are unlikely to get disinherited unintentionally if the assets are in the credit shelter trust. Children are often disinherited when assets go directly to a surviving spouse who later remarries.
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