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2014 Estate Plan Update—Introduction to Portability

By Stuart G. Schmidt, Esq. & David J. Lee, Esq.

Although a comprehensive estate plan should not require frequent extensive review, recent estate tax changes are significant enough that we recommend a formal review of your estate plan and particularly, your trust. Most clients have now learned that the estate tax exemption amount, the amount of property each person can pass tax free, has been raised to $5,340,000 for 2014. Although this issue alone does not necessarily require a change to your estate plan, a new feature called “portability” is important to understand.

Portability refers to the fact that the estate tax exemption can now be passed on to your spouse when you die. Before this law, a married couple’s revocable living trust had to create a Bypass Trust (also known as an Exemption Trust) to capture the deceased spouse’s property and shelter it from estate tax. Without a Bypass Trust, the deceased spouse’s estate tax exemption was lost. Portability solves this problem. Although a Bypass Trust can still serve an important role for controlling assets and protecting against creditors, for many married couples these issues are of no concern. If this is the case, your revocable living trust should be revised so that the creation of the Bypass Trust is an option as opposed to a requirement. This type of trust, called a Disclaimer Trust, allows the surviving spouse more control, flexibility, and a less expensive trust administration.

Portability is an important estate planning concept that should be factored into your new or existing estate plan. Establishing an estate plan that incorporates the most advanced estate planning concepts is critical to your family’s well-being. Did you know that:

  • When you die without a trust, a court process (“Probate”) could be required to transfer everything you own to your heirs. Probate can cost thousands of dollars and can delay the transfer of assets.
  • Everyone has a default estate plan. If you do not properly designate who will inherit everything after your death, the State of California (through intestate laws) will make that decision for you.
  • If you have not made plans for who will raise your minor children, a Judge will decide that for you.
  • Without power of attorney documents, if you become incompetent it may cost your family thousands of dollars to have the right to take care of you and to direct your medical care (through a conservatorship).
  • “Joint Tenancy,” the way many married couples hold property, does not avoid probate on the second death and may cause a substantial amount of capital gain tax if assets are sold after the first death.

It is time to review your estate plan. If you don’t yet have an estate plan, it’s time to get it done. Your death or incapacity will be emotionally traumatic for your family; don’t make it legally difficult as well. Contact one of our estate planning attorneys , Stuart G. Schmidt or David J. Lee, to assist in the creation, review and/or update of your estate plan. Our job as your attorneys is to make this process easy and painless and, most importantly, put a proper plan in place. Call us today at (408) 356-3000 or send us an email at

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