Life Insurance Case Study November 2009

“With the right planning, their estate tax could disappear in a few years, assuming that the unified credit continues to grow and their estate doesn’t grow faster. I would plan for what we know today, make sure we have the ability to use unified credit in both estates in our plan but have spouses disclaim property that will go into the credit shelter trust or to children directly. That provides for post-mortem planning.

“Estate plans used to promote maximizing the credit shelter trust, but that may not be appropriate any longer. If we get to a point where they each have $3.5 million of credit, do you really need all of the assets in a credit shelter trust, or do you put in a smaller amount for flexibility?

“We have to be careful with Jack’s money in his IRA in case something happens to him. We want to fund the unified credit but we must be careful that the trust it’s going into is written so the tax benefits of the IRA remain intact. There are five points that a trust must meet for an IRA to maintain its tax-deferred status. Retirement dollars are my last choice to fund a credit shelter trust, but if that’s all you have, then you want to direct it there so you can use the credit.”