A Will is a basic estate planning document that provides for the distribution and disposition of property and personal assets of an individual after death. A Will becomes effective upon death; therefore, it may be changed at any time prior to death. It should also be periodically reviewed to be sure it applies to the maker’s current personal and family situation. A Will may contain general or specific provisions regarding the care and distribution of property, the distribution of disclaimed property, recommendations for guardians of minor children, the appointment of executors to administer the Will and express desires and guidance regarding the administration of the estate. Finally, the Will may establish trusts for the benefit of loved ones or charities and trustees to manage these trusts.
The design of our preferred Will for single-marriage clients creates two trusts at the death of the first spouse: a Marital Trust and a Credit Shelter Trust. At the death of the first spouse, the Credit Shelter Trust is funded with enough assets to capture the first-to-die spouse’s federal estate tax exclusion amount, and the remaining assets, if any, fund the Marital Trust.
The Marital Trust is funded with any amounts over the exclusion amount because the (100%) Marital Deduction allows an unlimited amount of assets to be transferred to a spouse upon death tax-free. This structure provides for the benefit of both estate tax exclusions: initially the federally-provided exclusion, whatever that may be in the year of death, and the marital exclusion for all assets above that amount. Thus, no estate taxes are due at the death of the first spouse.
While it seems complicated, please keep in mind that the surviving spouse may have control over all of the assets of each Trust, as the Trustee of the Trusts, and would also be the primary beneficiary of the Trusts.
In the event one or both spouses are not U.S. Citizens, additional language must be added to the Will to ensure the couple receives the full benefits of the U.S. estate tax laws.
When children inherit property, we prefer a descendants’ trust created by the Will at the death of the second spouse. This allows the assets to pass, in trust, to children and future descendants. This format protects the assets from future estate taxes, creditor issues, divorce or other claims against the descendants. The descendant, just like the surviving spouse above, upon reaching a certain age, may be the trustee of their trust and will be the primary beneficiary of his/her trust.
For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.
In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.