Great video, but I have a few questions: 1. The amount of assets division in A/B trust - in your video you made the examples of A/B trust in many places as "If a couple has 2M assets, then A will have 1M and B trust will have the other 1M....". But in my understanding of how A/B trust is commonly set up, it's not meant to be divided 50-50. Usually the B trust is the amount of federal life-time exemption amount and A trust is the remaining. This was developed to make sure the deceased spouse's federal exemption is not wasted. I understand that with the portability rule later in effect this is no longer necessary, but that was the original intention. Anyway, necessary or not, the division of A/B trust amount was never meant to be 50-50. 2. The other factor is the unknown estate tax rate and exemption amount in the future. For high net-worth couples, there is a benefit with the irrevocable B trust as any growth and appreciation in the B trust will be exempted from the estate tax when the surviving spouse passes away. Let's say the lifetime exemption amount is 7M at the death of the 1st spouse and a B trust of 7M is created. Later when the 2nd spouse die, the $7M has grown to $14M. It seems to me it's not simple clear answer if getting a step-up on cost basis for that 14M assets to save 30+% capital gain tax for the children beneficiaries is always better than saving 40% estate tax on the $7M growth. Am I missing something? 3. A/B trust with disclaimer - if the A/B trust had the disclaimer option setup, then the surviving spouse has the option to decide whether and how much to set up the B trust anyway within 9 months after the death of 1st spouse depending on the estate tax law at that time and asset situation.
Thanks for leaving a comment with questions. Couples with $14M estates should still consider AB and ABC Trusts for the reasons you mention. Most people who have old AB Trusts do not have this amount of assets. For that reason, we typically recommend that those of more modest means seek advice about the suitability of an AB Trust. You can read more about AB Trusts on our website: www.cunninghamlegal.com/is-an-ab-trust-still-effective/
Thank you for your question. I believe you are asking if you can reform a B trust to reduce taxes. The answer is yes and it often is accompanied by a court petition to do so. We would be happy to discuss with you one-on-one: www.cunninghamlegal.com/california-law-offices/contact/
So if I’m concerned about capital gain taxes in B trust what other plan should I have or just simply have spouse cancel the B trust as you mentioned ? Also you’ve mentioned having to repay depreciation recapture tax a couple times. Is that tax on all property or only property held for business use ? Thank you !
Art, if you are not currently represented- you should reach out to our office and we can help you with your B Trust issues: www.cunninghamlegal.com/california-law-offices/contact/ since a full evaluation of your estate will be needed in order to assist you with creating a comprehensive estate plan.
