Baby boomers are inheriting their parents’ wealth, and their children are receiving funds transferred through a variety of trusts established under their parents’ estates. You may find yourself responsible for managing the wealth transfer process.

In the past, banks and trust companies were tasked with dealing with estates, but these days, individuals are taking on the jobs of executors and trustees. If you lack experience in administering estates and trusts properly, you may turn to the attorney who prepared the will or trust. But some lawyers refuse. They point to the potential conflict of interest and ethical problems swirling around questions of whom they represent — the fiduciary, the estate or the surviving spouse.

Estate administration involves complex questions about accounting and taxes, so if you have no background in those fields, you’ll need an adviser. While the knee-jerk reaction always has been to seek out an attorney to administer an estate, you may join an increasing number of folks who are turning to accountants. They are, after all, the best people to administer credit shelter trusts, an increasingly popular tool in estate planning.

One of the more popular credit shelter trusts is the marital gift trust, which preserves estate tax exemptions to be used later by trust beneficiaries. The will bequeaths to the trust an amount up to the value of the estate tax exemption. The remainder of the estate is then passed directly to the remaining spouse tax-free using the unlimited marital estate tax deduction. This divides an estate in a way that reduces the overall amount of estate tax paid.

In order for the credit shelter and marital trusts to be used effectively, married couples should examine how their individual assets are titled and whether there are sufficient assets to fund the marital trust exemption of 12.06 million dollars in 2022. If all assets are held jointly with rights of survivorship, the joint assets would pass directly to the spouse and no exemption would be utilized.

Assets placed in a credit shelter trust remain tax-free even if they increase in value. On the death of the surviving spouse, the value of the trust assets won’t be included in his or her estate. One benefit of the marital gift trust is that the surviving spouse is not required to take income distributions on an annual basis. Instead, the principal remains intact, which may increase the trust’s overall value for all parties.

The rub is capital gains on the assets. The value of the assets will continue to grow during the remaining spouse’s lifetime and eventually will be taxable to heirs. This is an issue that your CPA can advise you on.

Portability has changed marital estate planning by allowing more options. It may be better to create a marital gift of credit shelter trust on the first death and not use the deceased spouse’s exemption. By porting, the survivor will have the benefit of two estate tax exemptions to shelter the assets from any estate tax. If the first spouse to die does not use the entire estate exemption, Form 706 is required to be filed with the IRS if a portability election is desired even if no requirement to file exists.

Dividing property between the marital gift and credit shelter trusts is required only if the decedent left a surviving spouse and the estate more than the current estate exemption of 12.06 million.

Careful estate planning can eliminate a significant estate tax burden for surviving spouses and their beneficiaries. Credit shelter and marital gift trusts can be useful tools in preserving an estate’s assets. Determining which option is best in a given situation depends on the amount of control desired by the original donor and the income needs of the surviving spouse.

The number of trusts is increasing primarily for tax purposes, which means your chances of being asked to be an executor or trustee is growing too. While technology has made trust information easier to deal with, it still wouldn’t hurt if you turn to a CPA who’s in a unique position to provide professional services as you deal with the estate or trust. Your accountant can interact with lawyers, financial planners, other CPAs, insurance agents, realtors and members of the decedent’s family. Give the office a call.

Have Questions?

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.