Trust Amendments vs. Restatements

You have made a very wise decision when you protected your family from Probate by investing in a Living Trust. However, your Living Trust is not a once in a lifetime, “do it now and forget about it” experience. Changes in your personal circumstances may require “updating” your trust in order to avoid unnecessary and inconvenient burdens and expenses for your family. If it has been a couple of years since you last taken a look at your living trust, ask yourself the following questions:

  • Is your Trust over 5-7 years old?
  • Has there been a change in your family? Birth, death, divorce, or marriage?
  • Do you have a Married Couple’s Trust and your spouse has passed away?
  • Do you wish to change the names and/or order of your trustees or agents?
  • Do you wish to change the disposition of your estate?
  • Did you purchase or refinance Real Estate since your trust was established?
  • Are you in need of long-term care and seek Medi-Cal options?

Why It’s Important to Have Trusts Reviewed & Serviced

Any Trust created before the 2010 New Estate and Gift Tax Legislation MAY NEED a review, amendment and/or restatement to take advantage of the flexibility of the new law called “Portability”. On December 17, 2010 Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR 4853). This legislation dramatically changed the laws that would have come into effect on January 1, 2011 on Federal Estate and Gift Tax. These taxes are imposed to tax the transfer of wealth from one generation to the next. Many people wish to avoid this type of transfer tax.

As of December 2010, both the Estate Tax and the Gift Tax Exemptions increased, however, they became tied together so that every individual may transfer the exempt amount during their life or at death. The new law also provides for “portability.” Portability allows a surviving spouse to preserve a deceased spouse’s unused estate tax exemption by filing a federal estate tax return. This preservation ensures that the couple may ultimately transfer a combined $10M before paying any transfer/estate tax. In a household with modest assets that created a trust prior to 2010 should have it reviewed to look for this very outdated provision which can be inflexible and have harsh requirements for the surviving spouse.

Amendments vs. Restatements

Depending on the complexity of what revisions need to be made to your Trust, an attorney would either recommend a Trust Amendment or a Trust Restatement. A Trust Amendment is recommended to those whose Trusts who need a small change made. For example, if the Trustee you had selected has now moved away or if you’d like to change the disposition of your beneficiaries. A Trust Restatement is recommended when the entire Trust is outdated, simply because of how long ago it was created or because the entire content of the Trust needs to be updated. An attorney Trust review can determine whether your Trusts needs an amendment or a restatement.

Survivor’s Restatements
When the First Spouse Passes

When one spouse dies, a surviving spouse suffers greatly from grief, sadness, feeling of loss and emptiness. However, there are no immediate difficulties in day-to-day life when it comes to dealing with banks, mortgage companies, maintaining houses and paying bills. Generally, the husband and wife are both on the bank account, as joint account holders or co-trustees. The surviving spouse is able to sign the check, deposit or withdraw the funds to do whatever they wish to do. So, it will appear that nothing needs to be done…. right?

NOT so if you want to maintain the effectiveness of your trust. If you have created a trust when the estate taxes were at a 55% for any amount over a small exemption amount such as $600,000 all during the 1990s. Your trust will most likely have A-B or A-B-C provision requiring (a wording of “shall”) a division of assets to survivor trust (A), tax credit/by-pass trust (B) and/or disclaimer/marital deduction trust (C) in order to minimize the eventual estate tax upon the death of the surviving spouse. These types of trust are very inflexible to manage for the surviving spouse of a modest estate with assets not exceeding $5 million today.

In order for the trust to be legally effective, the surviving spouse MUST appraise the assets, identify and allocate assets belonging to the deceased spouse into the tax credit/by-pass trust, and file an Estate Tax return (IRS Form 706). This trust is irrevocable and the surviving spouse cannot change the terms and conditions of the trust. If the required A-B or A-B-C provisions are not executed, the entire trust is deemed irrevocable rendering the surviving spouse to live with the old, ineffective and inflexible terms created when the estate tax laws were much different than today.

How to Start Your Estate Planning

It’s called peace of mind…and you can have it. So, when is the best time to start estate planning? Right now! When you are ready to start thinking about inheritances and protecting your assets for the future, the first step is to contact an expert estate planning attorney.  Elder Law Services has taken pride in helping families since 1995.  Our experienced legal team will walk you through every step of the process.

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