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MARC WEISSMAN

ESTATE PLANNER
FOSTER CITY

Estate Planning, Trusts

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"LOCKING" THE A TRUST
ANTI-BIMBO CLAUSE

The standard estate planning tool for a married couple for almost 20 years has been the A-B or A-B-C Trust. It works well. Usually.

Let's assume (as always) that Husband dies first. His half goes into the B Trust.

    To illustrate, if H + W are worth $2,400,000, at H's death his $1,200,000 goes into the B Trust; W's $1,200,000 goes into the A Trust. There is no tax at the first death.

IF H's half of their net worth was over the tax free amount (presently $3,500,000) the excess goes into the C Trust.

    If H + W are worth $8,000,000, at H's death his first $3,500,000 goes into the B Trust. Then the B Trust is filled up and anything above that ($500,000) from H's half goes into the C Trust. W's $4,000,000 goes into the A Trust. There is no tax at the first death.

In the first example, the B Trust was not filled up, so there was no need to activate the C Trust: it was available but not needed.

This is all standard. What happens next can be a surprise.

After H dies, typically W has the right to:

This means that after H dies, W may spend the entire B + C Trusts (H's entire half) in her discretion, and leave the A Trust to her new friend, the golf pro.

Why is it done this way? "Because that's how we have always done it."

That's not a good reason do something. Instead we should consider what the clients want, and offer appropriate alternatives.

Here is my favorite solution: Lock the A Trust.

H dies, The split between the Trusts is the same. But what happens next is slightly different: W can spend everything as she decides best, but cannot leave anything to anyone but the family. I call this the "anti-bimbo (or bimBOY) clause."

Here's why this might make sense for you:

This is not the lawyer's decision: it is up to the clients.

How can you tell if your spouse can change the A Trust after your death? Look for a paragraph entitled "General Power of Appointment" in the A Trust (aka Surviving Spouse's Trust). Then discuss with your lawyer whether this is a good idea and what other options may be appropriate.

Personally, my wife and I decided that the Survivor should be able to do anything at all for life (including remarry or just shack up) but when the second spouse dies, whatever reamains must go to our children / grandchildren. In other words, have a good time, but don't leave him OUR HOUSE: it must go to our kids.

What's the right answer for you? Only you can decide that.

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