Unlimited Marital DeductionSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Bypass TrustsSlide 11Slide 12Unlimited Marital DeductionAdvantagesDefers estate tax until surviving spouse diesAssuming surviving spouse doesn’t consume assetsAssuming surviving spouse doesn’t remarry and leave assets to charming new spouseMay ensure surviving spouse will have sufficient assets to use applicable estate tax credit ($5,340,000 in 2014)But remember surviving spouse can use “left over” exemption$3,500,000 Illinois exemption/10% - 16% rateSpouse will not suffer a reduced standard of livingSpouse can receive income from trust assets, even if not left outright ownershipUnlimited Marital DeductionDisadvantages“Leave everything to spouse”Stacks estatesSurviving spouse controls disposition of assets if outright transferCreditorsNew charming spouseUnlimited Marital DeductionIn general, assets transferred to surviving spouse won’t qualify for marital deduction if subject to terminable interestWant to make sure asset included in estate of surviving spouseUnlimited Marital DeductionExceptions to terminable interest ruleSurvivorship clausesUp to six monthsCommon disasterSpouse must surviveUnlimited Marital DeductionExceptions to terminable interest ruleIf spouse holds power of appointment over assetsSpouse must receive annual income from trustPower of appointment can only be exercised by surviving spousePower of appointment will cause assets to be included in surviving spouse’s estateCharitable Remainder TrustsSince a charitable remainder, assets wouldn’t have been included in surviving spouses estate anywayUnlimited Marital DeductionExceptions to terminable interest ruleQTIP: qualifies for marital deductionIncome from assets to surviving spouse for lifeAssets generally go to children of first to die spouse on death of second to die spouseGenerally assets equal to annual exclusion amount may go directly to childrenImplications as amount increases?2009: $3,500,0002010: Unlimited2012: $5,120,0002014: $5,340,000Unlimited Marital DeductionExceptions to terminable interest ruleExecutor must make QTIP electionProperty subject to QTIP election must be included in surviving spouse’s estateExecutor of surviving spouse’s estate can require QTIP trust to pay transfer tax attributable to QTIP propertyUnlimited Marital DeductionExceptions to terminable interest ruleQTIPRequirementsSurviving spouse must receive income for lifeNo contingencies in right to incomeProperty can not be appointed to anyone other than surviving spouseSpouse must have authority to demand sale of non-income producing assetsUnlimited Marital DeductionExceptions to terminable interest ruleQDOT: Non-citizen spouseRequirementsU.S. trusteePrincipal distributions from QDOT subject to estate taxSufficient assets left in QDOT to pay estate taxBypass TrustsUseful for estates where second to die estate would exceed annual exclusion amountIn general, for estates this size don’t want to “stack estates”Bypass TrustsIn general, leaveAmount equal to exclusion ($5,340,000 in 2014) amount to bypass trustCould leave directly to beneficiaryNo income to spouseBeneficiary (often children) has controlManagement of propertyExcess goes to surviving spouseSpouse can disclaim, if so desiresImplications of changing exclusion amountGive remaindermen power to appoint to surviving spouseBypass TrustsIn general,Spouse gets income for lifeLimited power to invade trust assets for ascertainable standard: health, support etc.Can have power of appointment over > of$5,000 or 5% of trust assets each yearAssets not included in surviving spouse’s estateChildren have remainder