1. I didn't mean one revocable trust for them together. They would have either zero or two (one for each) revocable trusts. At one time, the probate procedures in Massachusetts were more complicated. However, they were simplified when Massachusetts adopted the Uniform Probate Code and the Uniform Trust Code in 2012. So there's usually no need for revocable trusts. But there's no harm in having them. Lawyers who already had their forms for them may find it easier to continue to use them.[1] I know there is no need for two trusts, I have done a lot of research on this, and you have kindly offered me good info in the past on this subject. However, I cannot find a lawyer in MA who will do it this way. I have spoken with quite a lot of lawyers, none will consider doing it any other way. [2] They have their documents, and that's what they use. Frustrating, but I do somewhat understand - they would have to draft something new and take responsibility for it. Neither will they take responsibility for another lawyers documents - every new lawyer needs a completely new set of documents. Continuity will be a key requirement for our next lawyer.There's no need for two revocable trusts. You can put the same dispositive provisions in a Will as in a revocable trust....
I think the reason I have been confused is that every lawyer I have spoken with (quite a few), says something like "The federal estate exemption is portable, so we do not have to do anything to get both federal exemptions. However, since the MA exemption is not portable, you will only get one state exemption instead of two. We do however, have a way of preserving both state exemptions and that is by creating two living trusts, and when one spouse passes, we split their living trust into a credit shelter trust and you will receive the rest, thereby preserving both exemptions"
While "true", it is misleading, what is really going on is that this is all about preserving the federal exemption. You will still get only the one state exemption when the second spouse passes, but you can get $2M out of your estate before that happens without reducing your federal exemption. I can get pretty much any MA estate tax exemption I want at any time by putting assets in an irrevocable trust, I just have to be concerned about federal exemption limits, which I may or may not care about.
That is very different IMO, and by looking at it this way, opens up what may be an interesting option: I would think it is possible to have the first spouse, upon passing, gift the kids $2M (either directly or through a trust in their name), bypassing the credit trust, preserving step-up and preserving your federal tax exemption.This uses the first MA exemption, preserves step up, and does not require the complications and costs of an irrevocable trust.
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You are correct that Massachusetts doesn't add back taxable gifts so the surviving spouse may avoid the Massachusetts estate tax by making gifts. However, if the surviving spouse makes a gift, the assets he/she gives away won't be available for her if she ever needs them. On the other hand, if the deceased spouse left $2 million to a state credit shelter trust, it would be out of the surviving spouse's estate, but it would be available to the surviving spouse if he/she ever needs it.
Also, while there's portability for estate tax, there's no portability for the GST exemption.
So many Massachusetts clients will still opt for a $2 million state credit shelter trust and a marital trust for the balance of the Federal exclusion amount.If her parents' Wills were well-drafted, the trustees could have simply distributed the money to the children, or directed the executors not to set up the credit shelter trust and distribute the money to the children.... my wife's family just went through this. When the first spouse passed, a credit shelter trust was set up, but the surviving spouse wanted that money to be given to the kids. After a lot of shenanigans (time plus money plus undo tensions between everyone), the kids eventually received the money. It would have been far easier if the money were just gifted to them by the passing spouses estate.
I do understand that the surviving spouse would not have access to the assets if they were gifted to the kids instead of the trust, but that is not a concern for us, especially if this happens when only one of us is left.
[3] "If her parents wills were well drafted". Hah. I am not knowledgeable enough to know how well it was drafted, but {4] I do know that the lawyer involved dragged it out for as long as possible (over two years and a lot of lawyer fees). Everything, no matter how little, was made to be a big thing, and any decisions had to be formally ok'd in writing by all beneficiaries, which in itself, caused a lot of problems because a lot of people assumed that "something was going on" if they kept getting requests to respond in writing so often. [5] The second spouse passed after the first year, and it still took over a year after that to complete. The second spouse's assets still have not been fully [6] dispersed. I don't think it will happen until next year.
2. We prefer to do new Wills than to do Codicils to existing Wills, for several reasons. If you probate a Will and Codicil, everyone will see the changes, whereas if you probate a new Will, no one will see the changes absent a dispute. If you do a Codicil, you have to make sure it meshes with the Will. It also takes some time to review a Will to see what else should be changed.
3. In a credit shelter trust, the trustees usually have discretion to distribute income and principal to the spouse and issue (descendants), equally or unequally. Didn't the trustees have that power? Alternatively, didn't the spouse have a power of appointment (power to direct that assets be distributed to the children from the credit shelter trust)?
4. The executors don't have to use the lawyer who prepared the Will. They may use a lawyer of their choice. If it wasn't working out, they could have changed lawyers.
5. It takes a while to administer an estate. The executors have to ascertain what the assets are. Assets have to be valued, and often sold. Houses have to be cleaned out. Tax elections have to be made. Tax returns have to be filed. It's usually better to do it well than to do it quickly.
6. Did you mean "disbursed" rather than "dispersed?"
Statistics: Posted by bsteiner — Sun Sep 08, 2024 5:42 pm — Replies 11 — Views 806