A first step for clients with taxable estates who want to shelter their wealth from estate taxes is to consider using revocable trusts with pour-over wills.
Essentially, the pour-over will transfers typical tangible personal property outright to the surviving spouse, and after making any gifts to charities and other people, “pours” all remaining assets into the client’s revocable trust.[1] The maker may choose to fund the trust by transferring assets into it while alive or through a will at the maker’s death. Funding the trust while alive prevents such assets from becoming part of the public and bureaucratic nature of the probate process, while also allowing for the smooth management of assets in case of the maker’s incapacity.
In some jurisdictions, the probate process is not onerous enough to be the sole reason to fund the trust during the maker’s life; however, if the maker becomes incapacitated, having assets in trust allows for the successor trustee to immediately manage the trust assets for the maker’s benefit. For this reason, the trust drafter should add a Health Insurance Portability and Accountability Act (HIPAA) waiver provision giving the trustee access to the maker’s medical records to pay the bills for medical, nursing home, and other necessary care.
Watch for more on this subject in my future blogs.
[1] It is also possible to use a joint trust, in which both clients are the makers. Careful drafting is required to guarantee the step-up in basis of the assets deemed owned by the first maker at his/her death..
