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Good To Know: Will & Testament

What’s in your Last Will and Testament?

Estate planning practice in the last two generations frequently included a Testamentary Trust for benefit of a couple’s children at the death of a parent.  This trust was known by a variety of names, including “Bypass Trust”, “Family Trust”, or “Credit Shelter Trust”.  Rather than specify the exact amount of money going into the trust, many wills simply required that the children’s trust receive the “exemption amount”.  The exemption amount is the amount of property exempt from gift and estate taxes.

In 2001, the exemption amount was $675,000.  Twelve years later, the 2013 exemption amount had skyrocketed to $5,250,000.

Let’s look at a specific example of how this meteoric change in the exemption amount creates dire and unintended consequences.

  • Your clients Jack and Jill are married with a 2013 gross estate of $6,000,000.  Jill owns $5,250,000 in her name while Jack owns $750,000 in his name.  Jill executed a will in 2001 that gives the children’s trust the “exemption amount” and gives Jack the remainder.
  • Jill died unexpectedly in 2013.  Where does the money go at Jill’s death?  The children’s trust receives Jill’s entire $5,250,000 and Jack receives nothing.  Jill’s intent in 2001 was that the children receive “some” and Jack receive “most”. The result was that children received everything!

The solution is simple: Schedule an appointment with a trust and estate attorney immediately to defuse this ticking time bomb.