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Burlington, VT office 802.540.0529
Hanover, NH office 603.643.6072
Rutland, VT office 802.773.3822
Woodstock, VT office 802.457.9492

December 20, 2011 Newsletter Archive


SEASON'S GREETINGS

May the lights of the season brighten your days.


THE VALUE OF A JOINT REVOCABLE TRUST

by Meg Himmelsteib, Esq.

As 2011 comes to a close, the Federal estate and gift tax is once again in a state of flux. While the annual amount that can be gifted tax-free appears to be staying at $13,000 in 2012, the parameters surrounding our overall ability to make tax-free lifetime gifts and/or transfers at death remain unclear. In the absence of Congressional action, the current federal estate and gift tax exemption amount of $5 million (indexed for inflation in 2012 to $5,120,000) will revert to $1 million in 2013, though recently introduced legislation proposes a return to the $1 million figure as early as next month. Assuming such legislation fails to pass, Congress could potentially strike a compromise before 2013 and bring the exemption amount to $3.5 million or thereabouts. In short, it is anybody's guess as to how the federal estate and gift tax law will change in the next year or two, but relying on the $5 million exemption for the long term does not look like a good bet. Meanwhile, the Vermont estate tax will likely remain at $2.75 million in 2012, and New Hampshire has no estate tax.

Tied into the Congressional discussion on taxes is the issue of budgetary cuts. Various public services, including the judicial system, have been negatively affected by the cuts, resulting in reduced personnel and slower response times to court filings. Overall, this translates to an extended probate process. When considered alongside the costs and publicity associated with probate, the increased timeframe makes probate an increasingly unattractive option.
So how do these considerations relate to your estate plan? First and foremost, ensure that your estate plan is structured to allow for transfers without requiring probate. This means creating a revocable trust, if you do not have one already. If you do already have a revocable trust, make sure that you transfer your assets into the trust.

No matter how simple your estate plan, a trust is critical for ensuring probate avoidance. While popular culture sets forth the notion that trusts are only for large, complicated estates, this is simply not true. An uncomplicated joint trust creates the same distributions results as a simple Will with the added appeal of probate avoidance. This kind of joint trust is a good option for couples who do not require tax planning and plan on leaving all assets to their surviving spouse or descendants.

Be aware that joint trusts are not ideal for all clients. Trying to incorporate tax planning into a joint trust can create a maze of directions instructing the Trustee to create various trusts, within the joint trust itself, at the death of the first spouse. If you do have an estate that is potentially taxable, separate trusts are a much better approach, as they outline exactly what happens at the death of each spouse and provide greater clarity. If you are unsure whether you will have a taxable estate or not, due to the fluctuation in exemption amounts, it is better to err on the side of caution and opt for separate revocable trusts.

Overall, revocable trusts are beneficial instruments for all clients, regardless of asset level. Trusts provide for tax planning, which has become more important due the uncertainty surrounding the law. But even more significantly, creating and funding trusts allow for probate avoidance and more seamless distribution as judicial systems become overburdened and slow down the probate process. If nothing else, this reason should motivate you to reflect on your current plan and give serious consideration to a trust.


Melendy Moritz PLLC is a client centered boutique firm. We focus on your unique needs by providing the individualized legal counseling and advising tailored to your specific situation.

We concentrate on the planning that matters to you.
Call us at 603.643.6072 or 802.457.9492

 

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