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Reviewing Your Estate Plan:
Things to Consider

For those married couples with substantial net worth, attorneys have traditional recommended A/B planning to help minimize federal estate taxes. A/B planning meant that at the first spouse's death, the estate was divided into two parts:

  • The marital part, which was treated as going to the surviving spouse for federal estate tax purposes, and
  • The bypass part, which was treated as going to the kids for estate tax purposes.

With proper A/B planning, both the first spouse to die and the second spouse would have gotten credit for their estate tax exemptions - essentially doubling the amount that passed to the kids free from federal estate taxes.

What changed?

Well, the 2010 Tax Act, passed in December, made any unused federal estate tax exemption at the first spouse's death portable. The second spouse to die could add the unused exemption to his or her own exemption, making the total that can pass estate tax free as high as $10 million. The portable exemption does not require the kind of special estate planning that the A/B technique needed. These rules are effective for the next two years.

So is A/B planning still needed? The answer is yes where

  • Spouses want to earmark certain assets for children instead of surviving spouse,
  • The length of time between spouses' deaths is likely to be substantial,
  • The couple is worried about what changes might occur in 2013, or
  • Spouse or children need protection against creditors.

A/B estate planning may not be needed where

  • the couple are in a long-term committed relationship where the only children belong to both of them,
  • they have no real concerns about a possible remarriage by a surviving spouse,
  • the couple intends for their children to be the primary beneficiaries of the estate when both spouses are gone,
  • it is overwhelmingly important for the surviving spouse to maintain full control of all marital assets, and
  • asset protection concerns are not important.

In light of the changes made by the 2010 Tax Act, we are strongly recommending that those with sophisticated estate plans have those plans reviewed.

As always, please feel free to call to discuss these or other financial security issues of concern.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

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