I had an interesting conversation today with one of our clients. The sole purpose of them coming in to see me was to discuss whether they needed to have an A/B trust in place, which is what we had created for them. I asked what prompted them to ask that question and the response back to me was that they had attended a seminar where an estate planning attorney here in town had advised them that they did not need an A/B trust any longer and they really needed to restate their whole trust. I asked what his reasons were for them not needing an A/B trust any longer and they informed me that his answer was that there was a new and better way of doing things and nobody needs an A/B trust any longer.
Often times at my seminars I tell the audience there are bad mechanics, bad doctors, and bad dentists, and then I ask them, in a half sarcastic tone, are there any bad attorneys? They usually all start laughing, knowing full well there are bad attorneys. Unfortunately, there is some bad advice being given out there, and telling a client that they do not need an A/B trust can be bad advice.
So why would a client need an A/B trust? There are many reasons, but the one that seems to be focused on most is to avoid or minimize paying an estate tax. The argument can be made that since there is a $5 million estate tax exemption, indexed for inflation, there is no need to have an A/B trust, if an estate does not exceed this amount. This is being shortsighted in my opinion. If the sole reason for doing an A/B trust was for tax reasons then there may be an argument to not have an A/B trust, but the reality is there are other reasons to do an A/B trust that have nothing to do with taxes.
One of the reasons why an A/B trust is so good is because we can protect up to half of the estate value in the B trust when one spouse dies from future creditors of the surviving spouse. This seems like a pretty important and relevant goal considering there are approximately 1 in 12 Americans that are involved in some type of litigation.
Another important reason for doing the A/B trust is to protect the decedent’s heirs in the event the surviving spouse gets remarried. If this happens then we can ensure that the estate of the decedent is passed on to his/her heirs instead of the new spouse that the surviving spouse just married. We can also protect up to half of the estate in the event the surviving spouse gets divorced from the new spouse. This can be a very significant protection to both the surviving spouse and the deceased spouse’s heirs considering 50% of all marriages end in divorce.
Finally, one of the other reasons we recommend doing the A/B trust is that in addition to there being a federal estate tax there are also state estate taxes, and most state estate tax exemptions are less than the federal estate tax exemption. Currently the state of Arizona does not have a state estate tax, so Arizona is still a good state to die in, but things could change. Arizona could adopt a state estate tax or you could end up moving to a state that does have a state estate tax when your health starts to decline and you want to be closer to your kids. By having an A/B trust in place it will mitigate any state estate taxes as well as federal estate taxes.
It is crucial that you meet with an attorney that knows what they are doing when it comes to estate planning. Unfortunately there are many people out there that profess to know how to do estate planning, but lack the skill and knowledge to give good sound advice when it comes to these important matters. The people that end up paying for that bad advice are the general public. The attorneys at the law firm of Morris Hall have been doing estate planning for over 40 years in Arizona. We belong to a nationally recognized institution, the American Academy of Estate Planning Attorneys. We have given numerous seminars to both the private and public sector on various estate planning topics. If you are interested in sitting down with one of our estate planning attorneys for a free consultation please feel free to give us a call.
Contributed by Morris Hall, PLLC Arrowhead, Scottsdale and Phoenix Estate Planning Attorney and Partner David T. Eastman.
Why Choose Morris Hall, PLLC:
You have a number of options when it comes to estate planning, so why pick Morris Hall? First off, estate planning and asset protection are a very complicated endeavor and you should only trust someone who focuses exclusively on those matters. Also, Morris Hall is a proud member of The American Academy of Estate Planning Attorneys (AAEPA) which provides us additional support, advanced training, tools and information that is not available to others – which means that we can better protect your assets and your loved ones. We are one of only three firms in Arizona that belong to the AAEPA and are the only firm in New Mexico that has been granted membership. If you have assets and loved ones that you want to protect, you are in good hands with Morris Hall. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.