Asset Protection v. Simplicity

As I have previously discussed, recently Congress passed theAmerican Tax Relief Act of 2012, or “ATRA”. The Act affects only alreadyexisting provisions, but has many new tax implications. Some of the provisionsincluded in the act will positively affect estate planning. One of theareas affected by the Act is the maximum estate, gift and GST tax rate. Therate is now permanently set at 40%, which occurs on taxable estate worth morethan $5,250,000. Roughly .33 percent can take advantage of these highexclusions that have not yet been repealed.

The other 99.67 percent should considerchoosing between simplicity or asset protection when planning their estates. Thoseinterested in convenience and no oversight should not use a trust/bypass trustcombination. Instead, those who are focused on simplicity should use asurvivor’s trust. Advisor’s should look for mandatory distributions to bypasstrusts based on tax exemptions.

Although Bypass trusts are morecomplicated, they offer some advantages. Bypass trusts offer creditorprotection because of the trusts irrevocable nature. Additionally, it offersclients remarriage protection. When a spouse dies his or her trust property isstill subject to their control even after the second spouse dies. 

See Randy Gardner,Leslie Daff, Lew Dymond, Julie Welch, The New Estate Planning Dilemma: Simplicity or Asset Protection?, Journal of Financial Planning Jun. 1, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.