OK, get ready because it will become available to married couples in 2011 and 2012, portability of the federal estate tax exemption between spouses. The biggest argument in support of portability is that it will prevent married couples from having to create “costly” estate plans that contain “complex” AB Trusts. But not so fast. There are still plenty of reasons why married couples should consider AB Trust planning and why unwed couples may need it too:
- Planning for state estate taxes. There are quite a few states that still impose their own estate tax, so AB Trusts or even ABC Trusts may be necessary in order to defer payment of state estate taxes until the death of the surviving spouse.
- Planning for blended families. For couples on their second or later marriage, AB Trust planning will be necessary to insure that the final wishes of the first spouse to die are carried out after the second spouse dies.
- Providing creditor protection for the surviving spouse. AB Trusts are irrevocable and so in most cases assets owned by them will be protected from creditors and lawsuits. In addition, any assets owned by the A or B Trust will be protected from a divorce settlement if your spouse remarries after you die and then later divorces.
- Planning for same sex or unwed couples. Until same sex marriage is recognized by the federal government, same sex couples will need to use “B” Trust planning in order to be able to pass on up to $10 million estate tax free. And the same goes for unwed couples – they will need “B” Trust planning too.
Will Portability of the Estate Tax Exemption Lead to the Death of AB Trusts?