All posts by Darlene Lopez

Ever Been Told To Get Your Trust Reviewed?

For a couple of decade’s estate planning attorneys have used irrevocable Bypass trusts to implement estate tax planning.  The Bypass or “B” trust could be used to meet IRS guidelines while assuring that a surviving spouse was properly supported and at the same time guaranteeing that what remained went to children.  For much of this time the exemption from estate tax was extremely low and therefore compelled the use of an irrevocable Bypass Trust.

Since 2013 the exemption from estate tax has climbed and currently $5,450,000.00 per person, meaning that a couple can pass a combined $10,900,000.00 before paying an estate tax. Congress has also tagged on a cost of living rider so the exemption will continue to rise into the future.  Additionally, for the first time ever Congress now allows couples to transfer any unused exemption amount to the surviving spouse – this transfer is known as “portability” and must be claimed on the deceased spouse’s estate tax return even if the return would not otherwise be required.  The combination of the high estate tax exemption and the portability aspect has changed the focus of estate planning and opened the door for a better income tax result.

Get Your Trust Reviewed

If your trust was prepared before 2013 then you should get it reviewed and here is why:  When property is inherited (first by your spouse, then by the kids) there is a new income tax basis allowed for capital assets at the fair market value on date of death.  Capital assets are assets that if held for a year would qualify for capital gain treatment like real estate, stock investments, and closely held businesses.  Resetting the tax basis is huge.  Additionally a new tax basis can occur again when property is passed from the surviving spouse to the kids.  HOWEVER, the Bypass Trust does not qualify for the “basis step up” and must be re-vamped in order to reposition the estate correctly.  Bottom line: Get a checkup.

Irrevocable Trusts or Not

In the past it used to be a no brainer to use the Bypass Trust which not only protected against the estate tax but also guaranteed inheritance to the kids, as the “irrevocable” nature of the trust does not allow the inheritance to be changed by the surviving spouse.  But with the stroke of the Congressional pen what used to be good is now less so.

Couples now have a choice in whether to use the irrevocable trust structure or not.  If a couple chooses to stay with the irrevocable trust then a different type of irrevocable trust is required in order to qualify for the basis step up when the kids inherit and to guarantee that the kids get an inheritance.  Most people want both the guarantee and the basis increase.

Couples that are not concerned with the inheritance guarantees of an irrevocable trust should still be eliminating the old style Bypass in favor of the tax basis increase to the kids.

What Does “Basis Step Up” Mean

Suppose you invested $100,000.00 in real estate and that investment is now worth $2,000,000.00.  If you sell the real estate you now have $1,900,000 of gain that subject to income tax.  But if that same investment, instead of being sold is inherited, the beneficiary will receive the real estate with a new “basis step up” at $2,000,000.00 and they can then sell it at that amount with no income taxation. Even if the property is not sold, the beneficiary will get a new depreciation schedule which offsets the rental income;  a very nice deal indeed.

Larger Estates

For estates exceeding $11,000,000.00 (or $5,450,000 for singles) the analysis changes again but is beyond the scope of this article.


There are so many important reasons to stay on top of your estate planning, it is impossible to list them all here. Do your family a favor and get your trust reviewed to make sure that you are taking advantage of all that the law allows with regards to tax planning and that your trust does what it is supposed to do.  Estate planning is full of nuances and there are an abundance of opportunities that could make a huge impact on your family.


Disclaimer:  This article is intended to give general information about the subject matter addressed.  Your situation may be different. No attorney client relationship is created. Consult with your qualified legal and tax professionals regarding your specific situation.


Can I Throw Out My Old Trust?

Since trusts do become stale over time many people restate their trust.  A restatement is a super amendment to the trust.  The restatement supersedes the previous trust entirely.  So, people want to know…can I throw out my old trust?

  1. Alice lost her husband. She went to the bank with her restatement trying to get herself named a sole trustee on the bank account. The restatement clearly named her as sole trustee.  But the bank wanted to know more.  It wanted to know if Alice and her husband had the right to amend the original trust in the first place.  Fortunately, Alice still had the old trust and yes indeed the trust could be amended.  Imagine the hassle had she thrown out her old trust.
  1. If for any reason a court should find that a will or trust is invalid, the immediately preceding Trust or Will would become effective. If there is a lawsuit challenging the validity of a Will or Trust, then the previous will or trust may become the operative document if the current documents are found to be invalid.  Additionally, the previous versions of the trust may designate who has the legal standing to bring a lawsuit and it may also help to clarify later amendments or restatements.

For these and many more reasons keep your old trust and will and all amendments.  These historical documents are extremely important




HEMS: Health, Education, Maintenance and Support. What is it?

It is a little surprising that there is not a lot of guidance on what the phrase health, education, maintenance, and support (HEMS) really means. This phrase appears in nearly every trust written in the United States. HEMS is an IRS approved phrase for tax reasons and has been adopted by the legal profession to cover reasonable limits on trust distributions. In short, it means you can have it if you need it.
                                                                                                                                                          Attorneys generally agree that maintenance and support include accustomed living expenses such as mortgage payments, property taxes, insurance payments, utility payments, vacations, and similar situations.
                                                                                                                                                          But what if I always wanted to visit Paris but my spouse refused to go? Typically HEMS could pay for the trip if it was within the life style that a couple lived. HEMS doesn’t really attempt to reduce your style of living and if a spouse has passed on, the survivor can still live within the accustomed life style even if the actual activities are a little different than before.
                                                                                                                                                                                                                                                                                                                        Many trusts will impose another condition which is “the trustee shall consider other resources” before a HEMS distribution can be made. That means that if you have plenty of your own resources then spend them first before taking HEMS distributions from your spouse’s trust.
                                                                                                                                                              The question of how much can be distributed under HEMS depends upon the total of all trust provisions, the intent of the trust, the character, condition, and circumstances of the beneficiary. No set sum applies to all cases as each case is as different as you and your neighbors. The station in life of the beneficiary as well as information on reasonable expenses sets the amount.
                                                                                                                                                           Suppose your spouse was a miser and left $10,000,000 in trust for you. Must you now continue to live a miser’s life style? There is not much guidance in this situation and reference to life style is not helpful. Personally, I think an increased lifestyle would be in order, but that’s just me.

Night of the missing Contest Clause


“Freedom is another word for nothing left to lose.” Janis Joplin

We were surprised in our many years of experience to find a common belief among clients that if a trust contains a “No Contest” clause- then a beneficiary or family member is barred or prevented from filing a lawsuit or a “contest” against the trust in court.  

Wrong. A contest is a petition that challenges the validity of a will or trust. A “no contest clause” does not prevent the filing of a contest or lawsuit; instead it punishes a contest if it is brought without probable cause. Legal grounds used to invalidate a will or trust are usually incapacity and undue influence, but can also include, forgery, unintentional mistake and other well-known legal grounds.

Example: A beneficiary receives $100,000 as inheritance from the trust. However, he/she challenges the trust because it should have been way more, that beneficiary stands to lose the $100,000 if the contest is unsuccessful. If the beneficiary is found to violate the “no contest clause,” then he/she would forfeit the $100,000 bequest.

If the trust in question leaves nothing to the beneficiary who is contesting, then the beneficiary stands to lose nothing if the contest is unsuccessful. In a case like that, the no contest clause does not create risk for the beneficiary; thus the Janis Joplin quote.

If in the court process the trust is found to be invalid, then the trust does not legally exist, and neither does the no contest clause.

A Potpourri of Common Allegations

  • Trustor(s) “lacked mental capacity” at they executed the trust documents..
  • The trust or amendments were the product of undue influence over the trustor by family members or friends.
  • The trustees breached their legal duties to the trustor by influencing him or her to execute Amendments to the trust.
  • That trust documents or amendments were forged.
  • That trust documents were drafted incorrectly and did not reflect the wishes of the trustor(s).

Estate Tax July 31, 2015 President Obama signed into law a requirement that an estate fiduciary [ie; Trustee or Executor] report the estate tax value of the property being received by the beneficiary to both the IRS and the beneficiary receiving the property.
                                                                                                                                                             These beneficiaries must treat their tax basis in property received from an estate that paid an estate tax consistently with the estate tax return value. In other words, the tax basis reported on the beneficiaries tax return must match that which was reported by the fiduciary on the Estate/Trust tax return.
                                                                                                                                                            Although this has always been the rule, this new law will give the IRS more teeth to enforce the law.  “I didn’t know” is eliminated as a defense to interest and penalties.