AB Trust Planning vs. Portability Under ATRA-2012 – To “B” or Not to “B”: #EstatePlanningAttorney

Kenneth BarneyEstate Planning Lawyer, Kenneth Barney, Trust Administration, TrustsLeave a Comment

The American Taxpayer Relief Act of 2012 (ATRA-2012) was enacted on January 2, 2013, effectively saving us from falling off the Estate & Gift Tax “Fiscal Cliff” that threatened us at the end of 2012.

ATRA-2012 was a welcome relief for many families who worried that the estate and gift tax exemption would fall back to a $1.0 million exemption with a 55% max tax rate.  Some of the changes ATRA-2012 made are:

  • Increase the top estate/gift tax rate from 35% in 2012 to 40%;
  • Permanently keeps the estate and gift tax exclusion at $5.0 Million (indexed for inflation);
  • Annual gift tax exemption increased to $14,000.00 for 2013;
  • No “sunset” provision is included in ATRA-2012 (meaning these changes are permanent, for now…);
  • Keeps portability (capturing a deceased spouse’s unused estate tax exemption).


The concept of portability means that a married couple is able to fully utilize both spouse’s estate tax exemption ($5.25 million each in 2013) to pass a maximum of $10.5 million dollars to their loved ones estate tax free without having to administer or fund a “B” trust after the first spouse’s death.

With ATRA-2012, most families will never have to worry about paying estate taxes.  However, since ATRA-2012 was passed, the concept of “portability,” has raised the question: is my current existing “AB Trust” still appropriate or is a simpler “A
Trust” is all my family now needs with portability.

As with any legal analysis, the answer is “it depends.”  Every family has its own unique set of circumstances that requires it to discuss these issues with a qualified estate planning professional and/or their CPA.  A few of issues I would discuss with a family when answering this question may include:

  • Step-up basis at both deaths vs. lack of step-up at second death;
  • Cost of filing 706 tax return;
  • Cost of administrating “B” Trust;
  • Family & remarriage protection;
  • Surviving spouse asset protection;
  • Appreciation of “B” trust assets are estate tax free at second death;
  • Blended family and child protection;
  • Annual accounting requirements;
  • Annual income tax (1041/141) returns;
  • Revocability vs. irrevocability of trusts.

In short, it is vital that each family talks with their qualified estate planning professional on a regular basis to discuss tax law changes, as well as other changes in assets and or the family that may have an effect on their estate plan.

If you have any questions regarding family based estate planning or any other legal issues, please do not hesitate to call the attorneys at Rowley, Chapman & Barney, Ltd. (480) 833-1113. Kenneth C. Barney is a partner with the law firm of Rowley, Chapman & Barney Ltd.

Attorney Profile: Kenneth C. Barney, Estate Planning Attorney

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