Page 10 - Accumulating, Preserving, and Passing Wealth | Stifel

Planning to Preserve the Exemption

For many married couples, their estate plan is to leave everything to the surviving spouse. No estate taxes are due at the first
spouse’s death due to the unlimited marital deduction. The unlimited marital deduction allows the transfer of asset ownership
between spouses without incurring any gift or estate taxes.

One way to ensure that you and your spouse both utilize your estate and gift tax exemption is to transfer your assets outright
to someone other than your surviving spouse, such as a child or other relative. This is not often an attractive alternative,
because most individuals want their surviving spouse to benefit from the assets during his or her life and only want the assets
transferred to others at the surviving spouse’s death.

A credit shelter trust (also commonly called a bypass trust, family trust, or non-marital trust) is a type of trust that will enable
both you and your spouse to take advantage of your individual estate and gift tax exemption while allowing your surviving
spouse access to the income and principal of the trust during his or her lifetime. This gives you and your spouse the
opportunity to transfer up to $22,800,000 in assets free from federal estate tax in 2019.

The American Taxpayer Relief Act of 2012 established the Deceased Spousal Unused Exclusion Amount. As of January 1, 2013,
married couples can elect to add any unused portion of the estate and gift tax exemption of the first spouse to die to the
surviving spouse’s estate and gift tax exemption. This is commonly known as portability.

For example, if a spouse dies and only uses $3,000,000 of his or her $11,400,000 estate and gift tax exemption, the surviving
spouse may take advantage of the unused $8,400,000. As a result, the surviving spouse will have a $19,800,000 estate and
gift tax exemption.

The existence of portability does not necessarily eliminate the use of various trust strategies, such as the A/B trust, particularly
in states that impose a separate estate tax at the state level. Consider discussing portability and these trust strategies with your
estate planning attorney.

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