PROPOSED LEGISLATION LIKELY TO ALTER ESTATE TAX LAWS THAT MAY AFFECT YOUR ESTATE PLAN Senate Finance Committee Chairman Max Baucus recently introduced legislation that may significatly impact the estate tax planning you have done with us.  Senator Baucus introduced a proposal that would make permanent the 2009 estate and gift tax laws, meaning the maximum estate and gift tax would remain at 45% and the current estate tax exemption amount of $3.5 million would remain in place and be inexed for inflation.  Additionally, the legislation proposes portability of the exemption amount for spouses which would make it possible for a surviving spouse to utilize a deceased spouse's exemption amount upon the surviving spouse's death, something only accomplished in the past by the formation of an "Exemtion Trust" or "Credit Shelter Trust" at the first spouse's death. How Does This Affect My Estate Plan? For those with estates worth less than $7 million, this is good news from a potential estate tax planning perspective as this means your assets will pass to your designated beneficiaries tax-free.  However, from a needs based planning perspective, this may not be the best news for individuals who have established "Two Trust/AB Trust" or "Three Trust/ABC Trust" in order to preserve a spouse's estate tax exemption amount by forming "Bypass" or "Credit Shelter" sub-trusts upon that spouse's death. What Is "Needs-Based Planning"? The tern "needs-based planning" refers to planing for your own practical and lifestyle needs as an individual to ensure that you have sufficient assets to support ourself for the remainder of your life.  Whith life exspectancies increasing, and the cost of living on the rise (in the midst of an economy that continues to suffer), many are finding they will need more assets to draw from during the "Golden Years" to maintain the lifestyle to which they have become accustomed.  As your estate planning attorneys, part of our job is to devise an estate plan that not only provides for your heirs at death, but also adequately provides for you needs during life. What are "Two Trust/AB Trust" or "Three Trust/ABC Trusts"? "Two Trusts/AB Trusts" or "Three Trusts/ABC Trust" are certain types of trusts that allow a couple to maximize estate tax savings in ways not readily available through other trusts.  These trust are sophisticated legal instruments and can be diffucult to administer without help from professional advisors.  Furthermore,  these types of trust can limit a surviving spouse's ability to access the deceased spouse's share of the couple's community property, which is generally half of all the assets owned by a husband and wife.  It is also important to note that "Exemtions" or "Credit Shelter's" sub-trsts, as well as any "QTP" (Material) trusts formed upon the first spous's death, are typically irrevocable trust, which is to say that, in most cases, neither the terms nor the beneficiaries of these trust can be changed. Why Do I Have a "Two Trust/AB Trust" or "Three Trust/ABC Trust"? As mentioned above, "Two Trust/AB Trust" or "Three Trust/ABC Trust" provide forsignificant estate tax savings in certain situations.  If you have a "Two Trust/AB Trust" or "Three Trust/ABC Trust, you fell into one of these certain situations at the time of your trust's formation.  Consequently, it made sense for you to create a "Two Trust/AB Trust ot "Three/AB Trust" to take advantage of the estate tax laws in place at the time relative to your estate value and its potential for growth.  These same trusts may still make sense today for many of our clients depending on your estate value and your exposure to potential estate tax liability.  For this reason, we recomment that all of our clients revisit their estate plan every three to five years to know whether it is necessary to update their trusts due to changes in tax laws, value of their estate, and relationship. How Does the Proposed Legislation Affect My Estate Plan? Given the proposed legislation from Senatr Baucus and the changes to estate tax law it sets forth, as well as recent changes in estate values resulting from the recession, we recommend that all of our clients who have formed "Two Trust/AB Trust" or "Three Trust/ABC Trust" sends us an updated asset inventory list so that we may review your current estate value to determine if these types of trust are still right for you and your family. Our aim at Jeffrey Burr is to provide every one of our clients with a custom-tailored estate plan that provides you with maximum flexibility and control of your assets such that the plan is not any more restrictive or complicated that it needs to be. Please contact our office to schedule a free consultation with one of our attorneys to review your trust in light of the proposed legislation. PROPERTY VALUE DECLINE With the recnet unprecedented drop in real estate values, we have found that many people are "upside-down" on their property loans, meaning that they owe more to the lender that the property is worth.  Many of our clients have expressed concern that some of their heirs, including children, grandchildren and friends, may be in a position where their inheritance could be lost due to their leir large mortgage obligations.  If you have any concern that one of your heirs could xomeday be in a position where a large debt could cause a significant loss of onheritance, please contact us.  We can rework your estate plan allow your family and friendsto recieve their inheritance without having the risk of loss due to a large debt, or divorce. It is very clear that in most juristictions in the United States, where a person (or persons) create a trust for the benefit of persons other than the person contributing assets to the trust, if the trust us drated correctly, it will be nearly impossible for the creditors if the trust beneficicary to gain assets to the trust assets.  Therefore, instead of leaving your estate to your children or friend, you can establish a trust for there benefit, and at your death, or a friend inheritance can pass directly from your trust yo your heirs, and since the assets never passed through the hands of your heirs, their chreditos will not be able to amke any claim on your estate once it passes your death. It's important that the trust for your heir be carefully crafted to eliminate any weaknesseswhich could be used to pierce the trust.  The good news is that the trust can provide your heirs with considerable access and benefits forn the trust while still protecting the inheritance from your heirs' creditors.  Just as an example, say your child's inheritance went to such a trust, the trust could purchase a house for the chiild to live in, the trust could pay the mortgage, taxes, utilities, ect., but the creditors would have no way of attacking the trust and seizing the house.  The trust could also provide other needs, if necessary, such as for education for grandchildren, paying for a car loan, making loans for the child to start a business, and so forth.  The advantages of these inheritance trust are so great that many people set them up for their heirs even if the heirs do not have any creditor problems. If you would like to protect what you have worked and saved so hard for, call us schedule a meeting with one of our attorneys to discuss a modifions to your estate plan that will allow your heirs to enjoy their inheritance from you without risk of loss due to outstanding debt or other misfortune.