The recently enacted federal tax legislation, informally referred to as the “Big Beautiful Bill”, has significantly expanded the federal estate tax exemption. Because of this, traditional tools designed to reduce estate taxes such as credit shelter trusts may now be unnecessary and potentially dangerous. For most families, protecting their children’s inheritances from a divorcing spouse or ensuring that assets left to a surviving spouse are not given to a new spouse are the paramount concerns that families want to address.
Special Concerns for New York Residents – Because New York imposes an aggressively punitive estate tax and does not allow you to combine your tax credits with your spouse, New York residents must continue to be concerned with estate taxes. New York residents concerned with the effects on their estate tax exemption should contact Legacy Trust & Capital Partners.
Why Reevaluate Wills with Credit Shelter Trusts
In the past, the federal estate tax was extremely volatile. Lawyers had to aggressively plan for sunsetting provisions and unknown credit amounts. The Wills that resulted from low and undetermined tax thresholds generally included a credit shelter trust (CST) or bypass trust, designed to fully use the federal estate tax exemption. But now:
- Portability of the exemption makes CSTs less essential for tax reasons.
- Assets placed in a CST may lead to higher capital gains upon sale by heirs.
- CSTs may restrict the surviving spouse’s accessto assets unnecessarily.
New Planning Focus: Divorce & Remarriage Protection
Now that the Big Beautiful Bill has reduced estate tax pressure for many families, planners can shift their attention to asset protection. More flexible arrangements can provide significantly better asset protection, particularly for widows and widowers seeking to maintain financial independence with a new spouse and parents seeking protection from ex-spouses of children or grandchildren.
Is My Plan Still the Best Fit for Me?
Review your existing estate plan to identify outdated credit shelter trusts or direct distributions to heirs that could create vulnerability in divorce or remarriage scenarios.
Consult Legacy Trust & Capital Partners to:
- Convert or redesign CSTs for modern purposes.
- Introduce protective trusts for heirs.
- Align your documents with both federal and state law as applicable.
- Identify possible capital gains exposure associated with Credit Shelter Trusts.
If your estate plan was designed primarily for tax minimization, now is the time to revisit it – not just to simplify, but to provide asset protection and tax savings.
Please contact our office to schedule a consultation or review of your estate planning documents at legacytcp.com
Legacy Trust & Capital Partners
This commentary reflects the personal opinions, viewpoints and analyses of the Legacy Trust & Capital Partners employees providing such comments and should not be regarded as a description of advisory services provided by Legacy Trust & Capital Partners or performance returns of any Legacy Trust & Capital Partners client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Legacy Trust & Capital Partners manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
