The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing


Subject:  Re: Talk me out of a Financial Advisor Date:  6/8/2013  11:00 PM
Author:  JAFO31 Number:  72469 of 87981

2gifts: "Actually, no, the primary reason is not that your daughter would be too young to handle the money. The primary reason for the trust (and it could be set up via the will or set up now) is that you want to protect both your wife's lifetime exemption as well as yours when passing the entire estate to your daughter. Assuming you will have a large enough estate to worry about estate taxes, when the first spouse dies, the entire estate will pass to the surviving spouse, but the lifetime exemption is then lost because there is no limit on the size of the estate that can be passed to a spouse without triggering estate taxes. However, when that spouse dies and everything goes to the daughter, only the lifetime exemption of that last spouse is used before estate taxes are due, so you have lost the first exemption.

So if you have a $10million estate, and you die, your wife inherits your half of it without estate taxes, but your $5 million exemption is not used. When she dies, your daughter then inherits that $10 million estate, but there is a $5 million exemption from your wife, and so your daughter owes taxes on the additional $5 million. If, however, you had left your half to a trust when you died, your #5 million exemption is used up. When your wife dies, her $5 million exemption is then used, and daughter has now inherited that $10 million without having to pay estate taxes because both exemptions were used."

Not a trust lawyer, but I do not think that this is necessarily the law anymore. I believe that the last tax law changed this issue (at least in part).

Regards, JAFO

Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us