Planning Potpourri

■Have Your Tax Cake and Eat it Too. So you want to fund a $5M bypass trust on the
first death to maximize GST benefits and growth outside your estate. But you
live in a state that has decoupled from the federal estate tax and which only
has a $1M exemption. So it would cost nearly $400,000 to fully fund the bypass
trust. Is there a better option? If the surviving spouse can use the exemption
from the deceased spouse to protect an inter-vivos gift, this may provide a
valuable cure to an outdated will. The surviving spouse could choose not to
disclaim into a less then optimal bypass trust and then to simply gift the
assets, protected by the same exemption that would have protected the bypass
trust from estate tax, and then gift to a new trust formed to meet the current
planning objectives. This may also provide a practical solution to fully
funding a trust without triggering state estate tax in a decoupled estate on
the first spouse’s death. Few states that have decoupled have a gift tax. So
rather than fund a bypass trust on the first spouse’s death that might require
the payment of a state estate tax, the surviving spouse should endeavor to
inherit outright and then immediately gift the assets to a newly formed
inter-vivos trust. However, the deceased
spouse runs the risk that the surviving spouse will not make the
intended gift but instead make a different disposition of the inherited assets.
But hey, that’s what makes reality shows exciting!