Observation: While an oversimplification, what this choice really gets down to is choosing either (a) the utilization of portability and a single trust for the purpose of maximizing stepped-up cost basis to minimize future federal and state income taxes or (b) the utilization of split trusts, avoiding future federal estate tax with respect to property in the Decedent’s Trust at the death of the surviving spouse where there is an opportunity and likelihood of creating future, potential appreciation in the Decedent’s Trust assets and the ability to utilize the generation skipping tax exclusion amount.
So to some extent there is a balancing act of considering multiple factors, including weighing the potential application of federal and state income tax rates vs. federal estate tax rates. But many commentators believe that the use of portability and a single trust will be of great interest to those in the $10,000,000 combined assets range–absent other non-tax considerations. Here with couples owning assets valued under twice the applicable exclusion amount, income tax considerations will likely be of more concern than the federal estate tax considerations. But other factors such as life expectancies, age difference between the spouses, the nature and mix of their assets and whether there are children of a prior marriages will also need to be taken into account before the final determination is made.
Therefore, it is clear that while some commentators first thought the usefulness of the split trust concept had been weakened for most taxpayers by these two tax law changes, the passage of time has caused other commentators and practitioners to advise against automatically discarding the multiple trust concept in light of the many factors that need to be taken into account. As is often the case, the particular facts at hand will largely govern which is the preferable way to go.
The lesson evolving here is that there is no “one size fits all” approach to estate planning. In fact, the emergence of the income tax vs. estate tax comparison is in some respects complicating the decision without a thorough review of the facts and circumstances.
Michael W. Margrave