Advanced Marketing Forum Question

Dealing with Increased Exemptions through 2009

Question:
Regarding the new increased exclusion limits, we're finding that the language in some older revocable trusts call for funding the 'family trust' to the full exclusion limit. In many cases, unless the estate is very large, this may leave little if anything for the 'marital trust'.

Given the restrictions to the surviving spouse with the 'family trust', is there any recommended language or formulas. Obviously things like disclaimers etc. may make sense, but is there any good wording or solution to this problem?

Reply:
One solution would be to make the Credit Shelter Trust (a.k.a. Family Trust) more flexible by giving the trustee discretion to make distributions to the surviving spouse for any reason (rather than limiting the trustee's discretion by the usual ascertainable standards - health, education, maintenance, and support). Of course, the surviving spouse then couldn't be the trustee and a friendly trustee would have to be available who would be amenable to making distributions to the surviving spouse.

A second solution would be to handle the potential problem simply by the way the marital property is titled. If the marital property is divided up equally, even if the entire estate of the deceased spouse is directed into the credit shelter trust, the surviving spouse is still left with his/her half of the property. Combine that with the first solution suggested above, and you end up with a situation where the exemption equivalent of the first spouse to die is efficiently used, but the surviving spouse is adequately provided for.

The only other suggestion I would have would be to revise the Wills and property titling every year there is a change in the exemption equivalent amount.

Keith Buck, J.D., LLM, CLU, FLMI
Estate & Business Planning - Hartford Life

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