Mom’s Not Going To Be Happy!

Mar 31, 2014

By Rick Law, Estate Planning Attorney and Founder of the Estate Planning Center At Law Elder Law outside of Chicago, IL.  Serving families in Naperville, Geneva, Batavia, Aurora, Oswego, Montgomery, and many more.

Not very long ago, the estate tax was imposed on most middle-class estates. The standard and routine way to reduce or eliminate the estate tax for couples was to create a plan that divided the assets into two “buckets” at the time of the first death.

Although there are certainly exceptions to this rule, most of the time the husband dies before the wife. In fact, most women outlive their same-age spouses by five to seven years.  And, typically men accumulated and controlled more assets than their wives.

Based on the above realities, attorneys advised the couple that at first death (assumed to be the husband), all of the assets with a cumulative value up to the estate tax limit would be transferred into a “bucket” called the family trust.  The family trust was an estate tax exempt trust and the assets in this trust escaped estate tax both at the time of the first death (usually Dad) and at the time of the second death (Mom).

Only the remaining taxable assets (after the assets up to the estate tax limit were transferred to the family trust) went into the second “bucket,” which was called the marital trust.  The assets in the marital trust escaped estate tax at the first death (Dad) – and Mom has full access to all of those assets during her lifetime.

Mom is a beneficiary of the family trust, but she is not the only beneficiary. It is called a family trust because both Mom and Dad’s children are the beneficiaries of that trust. Mom has limited access to the assets in the family trust, and she can be sued by the adult children if they feel that she is not safeguarding their interests.

When the estate tax limit was low, most assets wound up in the marital trust because the family trust would hold assets only up to the estate tax limit. But in 2010 to the taxable estate tax threshold changed to $5 million per person. Any married couple with less than $10 million will not reach the estate tax threshold.

Now, if Dad has a traditional family and marital split trust and he dies with $5 million or less in his personal estate – ALL of his assets will be placed in the family trust and ZERO will be placed in the marital trust.  Remember, Mom has limited access to the assets in the family trust.  What will Mom do to pay for her expenses and care?

Lawyers call this “bypass planning.” That means Mom gets bypassed – and Mom is not going to be happy!

This is another important reason to update your current estate plan.

If you’re ready to start getting your ducks in a row, please give our office a call at 630-585-5200 or 800-310-3100. Your first consultation is absolutely free.  We’ll let you know what steps you need to take, right now, to protect yourself and your family.  Call now.

Sincerely,

Rick L. Law, Attorney, Estate Planner for Retirees.

Rick was named the #1 Illinois elder law estate planning attorney for the past 3 years by Leading Lawyer Magazine. He has been quoted in the Wall Street Journal, AARP Magazine, TheStreet.com, and numerous newspapers and articles. Rick is the lead attorney for Law Elder Law, LLP, focusing in Estate Planning, Guardianship, and Nursing Home Solutions. His goal is to give retirees an informed edge when it comes to dealing with an uncertain future.  Get flexible retirement strategies that work during good times and bad, plus information on how you can save your home and assets from being used to pay for long term care. Call 630-585-5200 or 800-310-3100 for your free consultation now!