Modification or Termination of Irrevocable Trusts
Why would you want to modify or terminate an irrevocable trust?
Change in Tax Law
Often times older trusts were set up as “A/B” Trusts, or “ABC” Trusts. Years ago, the estate tax exemption was a lot lower, as low as $600,000 at one time, so many families benefited from having a revocable trust split into a “survivor’s trust” and what’s called a “bypass trust” on the death of the first spouse. The bypass trust was funded so as to avoid the estate tax, which historically has been at a tax rate of 40% (and always at a higher rate then the income tax rate).
However, with the introduction of “portability” which allowed a surviving spouse to carry over the estate tax exemption amount of the first spouse to die, and the raising of the estate tax exemption to 11.2 million for an individual (and approximately 22 million for a married couple), there was no longer the need to create “A/B” Trusts, or “ABC” Trusts.
In fact, with an A/B trust, the family members were at a disadvantage from an income tax perspective, because there was a loss of step up in basis (i.e., elimination of capital gains) on the assets in the bypass trust.
Our firm has helped several families terminate the bypass trust, and move assets over to the surviving spouse, so that there is a full step up in basis on the death of the second spouse. In some cases, we have helped families save hundreds of thousands of dollars. Call our firm today, and set up a free consultation. We will review your trust for you and let you know if it is outdated and could benefit from having an irrevocable trust modified and/or terminated.
