Second Estate Taxability

So much of estate planning has focused on protection of the "non-taxable threshold" - otherwise known as a "credit shelter trust". In Massachusetts, that trust is usually limited to $1,000,000. In families where the first spouse passed away prior to the increase in the federal estate tax non-taxable threshold, that trust may be substantially larger.

In any event, the credit shelter trust is designed to avoid estate tax in the surviving spouse's estate. With that avoidance, however, the assets in that trust retain their tax basis - there is no step-up in basis on assets that are not taxable in the survivor's estate. And in trusts where different QTIP elections have been made for federal and state estate tax purposes, state and federal basis may differ.

It's important, therefore, in planning the survivor's estate, to analyze income tax as well as estate tax issues, to see (all other issues being equal) where the planning is best focused.

That said, implementation requires (i) data regarding current basis of trust assets, (ii) methods available to create a step-up, and (iii) non-tax issues (especially in second marriage situations.

This blog is not intended to constitute, and does not constitute, legal advise to anyone or any specific situation. See also our legal notices.