"Ted" <Ted[at]ixmil.com> wrote:

- quote -

A revocable living trust is generally what's used to
accomplish those purposes to the extent they can be. A
Crummey Trust is a different kind of entity used for
different purposes.

- quote -

Basis is stepped up when two things occur:

1. The owner of the property dies; and
2. The property is transferred to someone else.

If the transfer takes place before death, no step-up in
basis occurs.

The rules are different for spouses and children.

Is your wife the mother of your children? Do either of you
have children from prior marriages? Do you live in a
community property state? Do you have enough assets so
that, if you die your wife will be able to live comfortably
on half of what you have?

All these questions and more must be answered before a
proper estate plan can be established for you. Please find
a qualified professional to help you.

Stu

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- quote -

Is there such a thing as a living marital bypass trust, or
something that serves the same purpose of avoiding probate,
estate taxes, and capital gains?

When would step up occur, when the appreciated property is
put into the trust, or on death; or something else entirely?

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- quote -

Actually I found a good book in the library today!

I also checked my will. Reason the lawyer said there was no
estate tax to a spouse is because he put a trust in.

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- quote -

Any property inherited by one spouse from another is subject
to an unlimited exclusion for estate tax purposes. But what
that does is put the property into the other spouse's
estate, and in a higher marginal bracket.

It's like a marriage penalty. Each spouse is supposed to
get one full exclusion for estate tax (I believe it's up to
$2,000,000 for people who die this year). But when one
spouse leaves all he's got to the other spouse, together
they end up using only one exclusion, often resulting in
higher total estate tax.

- quote -

Estate tax is like a property tax. It's based on the value
at the date of death. The basis of estate property is
stepped up to the value at the date of death to avoid double
taxation on the same increase in value (that is both estate
and income tax).

- quote -

To the extent it's Husband's property, he establishes who
the beneficiaries are. To the extent it's Wife's property,
it's up to her.

That's why trusts are so helpful to people with kids from
prior marriages. I've seen too many situations of one
spouse leaving everything he's got to the other. Then when
the second one dies, everything the two had accumulated over
the years goes to her kids and nothing to his kids.

With trusts each can control his own portion of the property.

- quote -

It's best to keep the trusts separate. A Crummey trust is
an irrevocable trust for the specific purpose of owning a
life insurance policy. Estate planning trusts are usually
revocable, and don't have some of the restrictions of the
Crummey trust.

For example, one of the purposes of the Crummey trust is to
keep the insurance death benefit out of the estate for
estate tax purposes. But if it's also used as a marital
bypass trust, trust assets would be taxed in the estate of
at least one of the spouses. So you're defeating a major
purpose of the trust.

Stu

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- quote -

I thought spouses inherited without estate tax. I could
have sworn I was told that when I made my will out a number
of years ago. That is incorrect?!

- quote -

I didn't know that either; I thought the tax was on the
stock's basis. So there is never any capital gains on the
stock inherited by children either.

- quote -

Who establishes the trust beneficiaries; the husband (who
has died) or the wife? If the husband, can they be changed
after his death by the wife.

Lets say the husband had a Crummy Trust, going to the wife
with the children as contingent beneficiaries. Could the
Crummy trust be used as the marital bypass trust also (by
willing the stock to the Crummy Trust), or are they two
completely different things.

I appreciate your help; this stuff isn't documented at the
layman level anywhere I can find.

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"Ted" <Ted[at]ixmil.com> wrote:
- quote -

Now that I re-read that, I have to say the answer is no.
The kids can save income tax. But (assuming gifts to the
kids in excess of the annual exclusion amount) the amount of
the estate tax will be based on the value on the date of the
gift.

- quote -

Yup. It's counterbalanced by the fact that the $1000 is
included in husband's taxable estate for estate tax
purposes. If his estate is high enough to pay estate tax,
that's where the stock gets taxed.

- quote -

No, it's taxed in his estate (for estate tax purposes) at
current market value - $1000.

- quote -

Assuming she sells for $1000 and it would have had the same
value on her date of death, yes. But if the stock goes up
in value before she dies, the larger amount will be included
in her estate.

Even more can be saved if the stock (and the rest of the
husband's estate) is put into a qualified marital bypass
trust. The wife could get all the dividends from the stock
(or interest from the proceeds). She could keep it or sell
it as she believes best. And she could withdraw principal
if needed for her health or maintenance.

But when she dies it will not be included in her taxable
estate for estate tax purposes. If she inherits the stock
could be included and taxed in both estates. A trust avoids
that problem.

Stu

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"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Belonged entirely to the husband, not community property.
Lets say the stock is worth $1000 and the basis is $10.
Are you saying the stock goes to the wife, the basis jumps to
$1000 and no one pays capital gains?

If it remains unliquidated, it would be taxed in her estate
at $1000, while it would only have been taxed in his estate
as $10. So, it doesn't matter to her estate if it
liquidates or not, because it has the same value either way.
Do I have that right?

Thanks

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"Ted" <Ted[at]ixmil.com> wrote:

- quote -

First, it depends on whether or not they live in a community
property state, and whether the stock is considered the
husband's sole and separate property or the wife has some
legal interest in it.

In short, the wife gets a stepped up basis in the stock to
the extent it belonged to the husband, or all if it's
community property.

Stu

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If a man owns valuable stock in a Personal Holding Corp with
a near zero basis, he can save estate tax if his children
inherit the stock, compared to liquidating the company and
having them inherit the proceeds. Right?

But if his wife is the only heir, it won't matter one way or
the other, since there is no estate tax either way. Her
basis will be the same as his. Is that correct? (it will
affect her estate, but that is not the question...)

thanks.

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