New estate tax law allowing for the portability of a spouse’s estate tax exclusion has given many married couples the option of avoiding estate taxes without the cost and complexity of an irrevocable trust (typically referred to as an A-B trust) being established at the first spouse’s death. There are non-tax reasons why an irrevocable trust may still be advisable, which I won’t discuss in this post. However, there are broader issues to consider when analyzing the appropriateness of relying on portability.
Jeffrey Rennell, a nationally-known law school professor and estate planning expert, has noted that recent decades have seen significant changes in family demographics and structure. Historically, estate planners have structured revocable trusts to significantly limit the ability of the surviving spouse (usually the wife) to control trust funds, change distribution provisions, and govern the use of trust assets during the surviving spouse’s lifetime. This type of planning indicates, whether intentionally or not, a lack of trust in a spouse’s ability to manage trust assets, and to make wise decisions regarding the eventual distribution of trust property in light of possible changes in family circumstances. It also reflects an outdated view of women as being incapable of dealing with matters of wealth and finance.
If a married couple trusts one another, these restrictive trust provisions may not be necessary. When dividing a revocable trust at the first spouse’s death is not necessary for estate tax purposes, clients should ask whether they trust their spouse to manage their property after their death, to make wise decisions regarding their descendants’ inheritances, and to protect trust assets from potential predators. This is not to suggest that clients ignore or minimize genuine risks. However, planning is for specific families, not theoretical circumstances, and plans should be carefully developed based on a reasonable analysis of risk and consequences and each family’s wishes and circumstances.