Joe has an estate plan that was completed 15 years ago. Now 66 years old and considering retirement, he recently reviewed the plan and found he was not comfortable with it. It includes a typical A/B trust for him and his wife Mary (age 64) and an irrevocable life insurance trust (ILIT) that holds a $4 million whole life policy on Joe. It does not, however, include provisions for supporting the couple during their lifetimes, nor does it maximize the payout to their heirs after their deaths.
In a classroom, Joe’s existing estate plan would get an “A” grade. Like many plans, however, it would not be implemented until after Joe dies. An A/B trust accompanied by a pour-over will is a good start, but from a tax standpoint, it is a loser. The sad fact is that the typical A/B trust cannot save the owner even one dime in estate taxes. The IRS wins, the owner’s family loses.