Probate & Trust Law Section Conference Manual ... - Minnesota CLE

or more. If you fund a credit shelter trust up front on the first spouse to die and if
the assets appreciate significantly, the capital gains tax or income tax may exceed
the estate tax on the second spouse’s death if you just retained the asset until the
survivor’s death.
1. Example 1. H dies in 2011 and a credit shelter trust is funded with
$1,000,000. The DSUE to W is $4,000,000. If the trust appreciates to
$5,000,000 by the time W dies the capital gains alone will be at least
$800,000 when the estate taxes would have been zero. In this case,
holding the assets and using the portability provisions is better tax
management. (Of course, we are using a crystal ball to see the future first).
2. Example 2. Alternatively to example 1, if a credit shelter trust is only
funded to $1,000,000, if the balance of the estate is allocated to the
surviving spouse, the surviving spouse’s estate may pay higher federal and
state estate taxes by running up the brackets if all assets are held in the
survivor’s estate. H1 dies with $1,000,000 in a credit shelter trust and
$4,000,000 to the spouse (and $4,000,000 DSUE amount to spouse).
When spouse dies the $4,000,000 appreciates to $12,000,000. In this case
the taxes are higher both state and federal than if they had been taxed only
at the state level on the first spouse’s death.
D. Ante-nuptial Agreements. We may want to consider the use of portability in antenuptial
agreements. If the executor of a deceased spouse refuses to file an estate
tax return or elect portability a great deal of tax benefit can be lost, perhaps only
due to spite. An ante-nuptial agreement might want to include agreements to elect
portability. Gift splitting may also become a bigger issue with portability and the
parties may or may not want to mandate gift-splitting.
E. There is a 3 part series of articles entitled Portability - Part One
(http://www.americanbar.org/content/dam/aba/events/real_property_trust_estate/h
eckerling/2012/heckerling_report_2012_portability_part_one.authcheckdam.pdf),
Portability – The Regulations
(http://meetings.abanet.org/webupload/commupload/RP512500/otherlinks_files/p
ortability_the_regulations_2013_01_14_paper_1.authcheckdam.pdf) , and
Portability – The Game Changer
(http://www.americanbar.org/content/dam/aba/events/real_property_trust_estate/h
eckerling/2013/portability_the_game_changer_2013_01_15_paper_2.authcheckda
m.pdf ).
These were published by the American Bar Association and primarily authored by
Richard S. Franklin, Lester B. Law, and George D. Karibjanian. These articles
provide a more detailed examination of the portability issues and estate planning
considerations.
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