Estate Taxmageddon, Part II: Smoked Turkey Legs and the Spousal Access Trust
Let’s talk turkey.
It’s Friday and you’re back here. Meterologists promise prime football weather this weekend. The time is also right for some baseball, with the MLB season down to its final games and about half the league believing they can still make the postseason. There’s probably even a Heineken in the fridge or a decent merlot on the rack.
So why are you here?
If you’re under 40, you’re more concerned with keeping the smoked turkey legs warm between Saturday’s Michigan Wolverines-Notre Dame Fighting Irish tailgate and Sunday’s Baltimore Ravens-New England Patriots one than you are with estate planning. And rightfully so: Estate plans don’t score touchdowns and they’re not much improved with gravy.
If you’re over the hill, you may care that the Baltimore Orioles are stalking the New York Yankees like a mugger who’s spotted a tourist in the Bronx. But you’re also are trying to make sure your family doesn’t get mugged by approaching estate and gift tax increases lurking just around the 2012 corner.
On Tuesday, we talked about that. President Barack Obama and Republican challenger Mitt Romney have been talking about it. Actually, no, they’re spending so much time hurling out figures like 47 percent that they’re not even addressing real tax issues.
On Wednesday, Congress at least wanted us think they were talking about it when leaders of both parties met in secrecy. The meetings weren’t so secret that people couldn’t find out about them (I’d like to brag but I’m not really that good), but they were secret enough that I can’t tell you what was said (because I told you I wasn’t that good).
The talks are grabbing headlines so some, like Illinois Senator Dick Durbin, are trying to edge into the spotlight by confirming them to the public. But we don’t know if this is just a campaign stunt or if actual progress on tax reform is being made in these talks.
So while they talk we wonder how to avoid losing a fortune under what amounts to austerity on the tax horizon.
I can’t even think about covering all the planning advantages currently available so today I’ll only try for one – the Spousal Access Trust.
The general concept of a Spousal Access Trust is that a person can transfer assets to a trust for the benefit of his/her spouse, children, and future generations. How many assets? In 2012, $5.12 million of them before being taxed at 35 percent; in 2013, $1.12 million before being taxed at 55 percent.
What are the pros specifically of the Spousal Access Trust? Both spouses receive asset protection, estate tax protection, direct-descendent protection (property stays within the bloodline), and income shifting. The cons? The reciprocal trust doctrine and grantor trust rules.
Translation: You put assets into a trust for you and your spouse. This is a great idea if you are happily married. It’s not the best idea if you are thinking of changing automobiles or spouses every three years, though cars are admittedly easier to re-title than husbands and wives.
Disclaimer: The Spousal Access Trust is not document for do-it-yourself legal software, nor is it one to try on the phone with LegalZoom. The reason being that these types of trusts are even more complex than my garbled writing makes them seem, not least because they must avoid the Reciprocal Trust Doctrine. (You won’t find that on the software from Staples and the people at LegalZoom don’t know how to spell it.) This doctrine is a two-part test to determine whether trusts will be ignored because they are “reciprocal.”
If the trusts are inter-related and the trust creation and funding leave the creators of the trusts in essentially the same economic position as if they named themselves as life beneficiaries, the IRS and/or the courts will get grumpy – and those are not people to make grumpy. They will uncross the trusts and include the value in each of the grantor’s gross estate. All that time learning the DIY software or being harried by questions from a telephone paralegal? Wasted because the trusts are dead.
So you see this is not to be taken lightly.
If you have an interest in Spousal Access Trust, find a professional to discuss it with. If you don’t know a professional, call us and I’ll refer you to one of my WealthCounsel colleagues in your area. Or we can try to help you from here.
See us here Tuesday for another tip. In the meantime, enjoy the turkey legs.
Good luck and good hunting.
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If you’re interested in discussing business law, asset protection, or how to perfectly smoke a turkey, find out how to get in touch with us at: TheFisherLawOffice.com. You can also contact us at Facebook.com/FisherLawOffice, on Twitter @thefisherlawoffice, or at LinkedIn.com/in/FisherLawOffice. If you’re here just because sometimes we have kittens on the blog, get your fix at the Arts and Cats Movement. Click image(s) for source. A portion of this post was borrowed from Vol. 6.3 of The Wealth Counselor, a monthly newsletter for wealth planning professionals. A special thanks is due to Matt McClintock, J.D., and Jonathan Mintz, J.D., of WealthCounsel for use of that information.