Plan Descriptions

For married clients, the software generates 14 different plans: 7 for the husband dying first, and seven for the wife dying first. As you look at the plans, each one is intended to be an improvement of the previous one. The specific plans are:

1 and 8: All to Surviving Spouse. All of the decedent's assets, life insurance, and retirement benefits are paid to the surviving spouse, who then leaves everything to the children.

2 and 9: Unified Credit Bypass Trust with Outright Marital Deduction. The decedent's assets, life insurance, and retirement benefits are divided between a nonmarital (or unified credit or bypass) trust and the surviving spouse in accordance with a unified credit or optimum marital deduction formula. Such a formula is intended to reduce the federal estate tax to the lowest possible amount, taking into account both the unified credit and the state death tax credit (if a state death tax is otherwise payable).

3 and 10: Unified Credit Bypass Trust with Marital Trust. These plans take the same approach as Plans 2 and 9, but add a marital trust. The decedent's assets, life insurance, and retirement benefits are divided between a nonmarital (or unified credit or by-pass) trust and a marital trust (qualifying for the marital deduction) in accordance with a unified credit or optimum marital deduction formula. Such a formula is intended to reduce the federal estate tax to the lowest possible amount, taking into account both the unified credit and the state death tax credit (if a state death tax is otherwise payable).

4 and 11: Marital Transfers to Use Both Unified Credits; Unified Credit Bypass Trust with Marital Trust. These plans start with the same approach as plans 3 and 10, but also automatically shift assets from the spouse with the larger estate to the spouse with the smaller, and from jointly owned assets to the smaller estate. The program only shifts enough assets necessary to give both spouses the ability to fund a unified credit or bypass trust regardless of who dies first.

5 and 12: Transfers of all Life Insurance to Irrevocable Trusts. These plans start with the same approach as plans 3 and 10, but also transfer all life insurance, including that owned by the spouse and joint or second-to-die insurance, into an irrevocable life insurance trust that is no longer part of the taxable estates of the insured. However, if death occurs within three years of the transfer, life insurance is pulled back into the taxable estate. The program displays the life insurance as nontaxable assets passing to the children.

Plans 6 and 13: Marital Transfers to Use Both Unified Credits; Transfers of all Life Insurance to Irrevocable Trusts. These plans start with the same approach as plans 5 and 12, but also automatically shift assets from the spouse with the larger estate to the spouse with the smaller, and from jointly owned assets to the smaller estate. The program only shifts enough assets necessary to give both spouses the ability to fund a unified credit or bypass trust regardless of who dies first.

Plans 7 and 14: None to Surviving Spouse. None of the decedent's assets, life insurance, and retirement benefits are distributed to or for the surviving spouse, but are instead distributed as part of the nonmarital trust (not qualifying for the marital deduction), ultimately passing to the children outside of the surviving spouse's estate.