In last weekend’s “Weekend Investor” page in the Wall Street Journal, reporter Arden Dale in “How to Dismantle a Trust” reports that with the new increased federal unified credit amounts, some clients, and planning attorneys, have considered ways to terminate trusts that they “no longer need”. There may be cases where a trust is no longer needed, but if your living trust is written correctly, and you decide you do not want to use it, “defunding” it is very simple and can be done with just a bit of legal help. On the other hand, as many point out, living trusts provide various benefits to clients. First, the article points out that “marital trust” planning might not be required very often both because of the high unified credit ($5.25 million per person adjusted for inflation going forward) and the fact that unused credit can be used by a surviving spouse (the “deceased spouse unused exemption amount” or “DSUEA”). However, the article then argues that “disclaimer” trusts might still have many purposes. Most planners, including the attorneys as DRC, use different types of “disclaimer” funding for family and marital trusts so that spouses can plan, and agree, how to allocate family resources and wealth on the death of both the first and the second spouse. Second, trusts provide disability and healthcare planning that cannot be achieved outside of a trust. Third, trusts provide privacy unavailable to those using a will-based plan. Fourth, there is really no guarantee that the new “permanent” rates under the American Taxpayer Relief Act (“ATRA”), passed January 1, 2013, will be continued.
If a client dismantles their trust and then an event occurs which makes the need for a trust obvious, then what? Generally, if you have a revocable or irrevocable trust and you use it for your planning and it makes sense today, there are probably greater risks and costs in terminating the trust than continuing to use it as you have in the past.
MWR
