One of the most useful provisions of the American Taxpayer Relief Act of 2013 is that which provides American taxpayers with the ability to utilize portability. Portability allows a spouse to use any remaining federal estate tax exclusion that was unused by his or her spouse. Although the availability of portability means that those who use it properly will have to do less planning to avoid taxes, marital deduction planning is still important. A recent article discusses why.

Marital deduction planning can be used as an alternative to utilizing portability. Often, marital deduction planning involves setting up a trust to pass on deductions. Below are four reasons why creating a trust as a part of marital deduction planning may be more beneficial than utilizing portability.

  • In contrast to a trust, utilizing portability requires an estate tax return to be filed. This completion of this may be complex for some estates.
  • A credit shelter trust has the added benefit of providing asset protection benefits, whereas portability does not shield assets from creditors and lawsuits.
  • The generation skipping tax (“GST”) is not portable, therefore, trust planning is vital for individuals who want to avoid wasting any unused GST
  • Through a credit shelter trust, a person can protect inheritance for the children of the first spouse to die.

Importantly, each estate plan is unique to the individual for whom it was created. The benefits and drawbacks of any technique cannot be generalized. For assistance in determining whether marital deduction planning is right for you, contact us at (626) 696-3145.

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