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Historically, for wealthy individuals, mandatory credit shelter trusts were routinely established under Wills or revocable trusts as part of an overall estate plan.  However, following important changes in the law over the past several years, it is critical that individuals revisit their Wills or revocable trusts. 


For clients with estates of significant value, the American Taxpayer Relief Act of 2012 (ATRA) made estate planning more complex, as it made "portability" permanent; thereby providing yet another variable that will have to be considered in a well-structured plan.  Furthermore, it is important to note that, if a married couple relies solely on portability for their estate plan, the couple will lose the benefit of using the first deceased spouse's state exclusion amount.  In most instances, drafting a flexible estate plan (such as through qualified disclaimer planning and the use of certain qualified terminable interest property ("QTIP") elections) will allow circumstances at death to be considered before making the choice between options and, thus, may just be the most effective option of all.


QTIP Trust.  A qualified “Marital Trust” (“QTIP Trust”), which qualifies for the marital deduction, enables a deceased spouse to maintain control over the distribution of the trust assets upon the death of the surviving spouse, can preserve the deceased spouse’s unused GST exemption through a “reverse QTIP election,” and provides a greater degree of creditor protection than would be afforded by an outright bequest to a surviving spouse.  Using a QTIP Trust to accomplish these objectives (rather than a CST) may allow the trust assets to receive a step-up in basis upon the death of the surviving spouse and, in some cases, may postpone payment of state level estate taxes until the death of the surviving spouse.  In addition, the surviving spouse may wish to elect portability and subsequently use the deceased spouse’s remaining estate and gift tax exemption (DSUEA) to make lifetime gifts tax-free. 


In order to determine which of the above options will be best in any particular case turns on an analysis of many factors, including:


  • the total value of the estate

  • types of assets in the estate

  • ages of the spouses

  • likely period of time between deaths of first spouse to die and surviving spouse

  • anticipated increase in the value of the estate assets before death of first spouse

  • anticipated increase in value of the estate between deaths of first spouse and surviving spouse

  • anticipated estate, income and capital gains tax rates applicable to the estate, the surviving spouse and the beneficiaries of the estate

  • rate of inflation

  • need for asset protection

  • changes in New York state estate tax laws

  • whether a surviving spouse is likely to remarry

  • whether a surviving spouse is financially savvy

  • whether the couple has children from prior marriages

  • whether the beneficiaries of the estate includes grandchildren.


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