Estate Tax as of 2019

Estate Tax as of 2019. Most married couples today do not need an A/B trust any longer to avoid the estate tax and should consider updating their trusts to remove the mandatory A/B split provisions.

Dear Len & Rosie,

My father died ten years ago. My mother is still alive and she has an A/B trust. One of my brothers borrowed a lot of money from Mom and Dad and has never paid it back. Mom wants to change the trust to leave her home to only three of her four children. Mom’s lawyer says she cannot do this. Can you help?

Nena

Dear Nena,

People get confused by what an A/B trust means. You should think of the “A” as standing for the “above-ground” or surviving spouse and the “B” as standing for the “below-ground” or deceased spouse. Your parents created an A/B trust to avoid probate and reduce their estate tax liability. On your father’s death, all or part of his interest in the trust should have been transferred to the B trust, commonly referred to as the “Bypass” or “Exemption” trust.

Because the assets of the B trust are not really owned by your mother, they will not be subject to estate tax upon her death. For the B trust to avoid estate tax, it must be an irrevocable trust, and your mother’s right to withdraw trust principal must be restricted. Because this trust is irrevocable, your mother cannot change who gets to inherit the B trust on her death, unless the trust gave your mother a “power of appointment” that she could exercise by creating a new will that directs the trustee to distribute the B trust the way she wants. Most B trusts do not include powers of appointment, because the second reason couples create A/B trusts (besides estate tax avoidance) is to prevent the surviving spouse from disinheriting the deceased spouse’s chosen beneficiaries.

This does not mean your mother can do nothing. While she cannot amend the B trust she can do whatever she wants with the A trust. If she did not complete the administrative process of dividing the trust into its A and B shares after her husband’s death, she could do the A/B split now may be able to allocate the home entirely into the A trust (usually called the “Survivor’s Trust”). Since your mother can fully amend the A trust, she can leave it to three of her four children the way she wants. The B trust may also give her a limited power to invade trust principal, so your mother may be able to move part of the B trust into the A trust on an annual basis.

What your mother ought to do is to review the trust with a trusts and estates attorney to objectively review the trust and explain to your mother exactly what she can do to change the trust to suit her wishes.

Your letter raises another very important point. As of January 1, 2019, the amount a person may pass to their loved ones free of estate tax  $11,400,000, with an automatic inflation adjustment. In addition, a surviving spouse can take a deceased spouse’s exemption and pass as much as $22,800,000 fee of estate tax. Most married couples today do not need an A/B trust any longer to avoid the estate tax and should consider updating their trusts to remove the mandatory A/B split provisions.


Len & Rosie

It’s best to have an estate plan, even if it’s a simple will

Dear Len & Rosie,

My partner of the past ten years passed away recently. He did not have a will. His only assets were a mobile home and $42,000 in a money market account. He has three grown sons with whom he had not been on speaking terms for the past four years. Although we did not live together, my name is on the title of the mobile home as a joint tenant.

His sons have become hostile toward me. Is there any way they would have rights to any proceeds I might receive from the sale of the mobile home? Also, I have paid for all of my partner’s burial costs with my personal credit cards. Do I have a legal right to be compensated by his evil sons?  I was just planning on absorbing the cost, but since they are causing me so much grief, I would like to make them pay if they are legally bound.

Suzanne

Dear Suzanne,

You should not have to worry much about the mobile home. It’s yours as the surviving joint tenant. All you need to retitle the mobile home in your name is a death certificate and California Department of Housing paperwork the title insurance company will prepare for you in escrow when you sell the mobile home.

Your partner’s sons could try to sue you for the mobile home. They could claim that their father lacked mental capacity when he put it into joint tenancy with you, or they could claim that he was the victim of your undue influence. It is not likely that his capacity will be in question, especially if he added you to the title of the mobile home years ago.

An undue influence claim can be made if you procured the documents adding your name to the home and your partner held you in a position of trust and confidence. If this is the case, then the burden of proof may be on you to show that your partner gave you his home of his own free will and not as the result of your “manipulation”. Not that we’re saying you manipulated him, of course.

Realistically, his sons probably do not have a good case, and there’s not enough money involved to get most lawyers excited enough to offer to take the case on a contingency fee. This means the sons will have to sue you on their own nickel, and they are not likely to do that.

The sons could be made to pay your partner’s funeral and burial expenses if they are inheriting the money market account through their father’s estate. The estate is subject to the creditors claims and the costs of funeral and burial expenses. But, if they are willing to grudgingly accept your ownership of the mobile home, it’s probably better to follow your initial instincts and let them keep the money.

The lesson learned here? It’s best to have an estate plan, even if it’s a simple will. If your partner had hired a lawyer to prepare a will for him, the lawyer and his or her staff would be available as neutral witnesses as to what your partner’s wishes really were with respect to the disposition of his assets.

Len & Rosie