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PATTY ROUSE VARGAS | Estate Planning
The Importance of the Right Estate Planning Documents
Thanks to the Tax Cuts and Jobs Act of 2017 (“TCJA”), each in- dividual who dies during 2019 will have a lifetime exemption amount of $11,400,000. Combine this increase with the ability to utilize unused ex- emption amounts through portability the need to shield and defer federal estate taxes is, perhaps, no longer the primary concern of most clients. For many married couples, “traditional” estate planning prior to the enact- ment of the TCJA o en included a last will and testament that created both a bypass/shelter trust and a marital/ QTIP trust. Using this planning tech- nique, a testator could shield his or her estate from any estate tax liability and should a decedent’s estate exceed his or her lifetime exemption amount, any estate tax liability could be de- ferred via the marital/QTIP trust until the death of the surviving spouse.
Incident to this type of planning is the treatment of the cost basis of the assets passing to the surviving spouse for income tax purposes. While all assets receive a new basis upon the
death of the  rst spouse regardless of which type of trust is funded, only those assets transferred to
the marital/QTIP trust bene t from a second change of basis upon the death of the second spouse. Alternatively, the assets held in the bypass/shelter trust, although still shielded from estate taxes, do not receive a second change of basis following the death of the second spouse; thus, a bypass/ shelter trust can now create signi - cant income tax liabilities for future bene ciaries, especially where assets held in a bypass/shelter trust have the potential for signi cant appreciation.
 is potential downside has led to a balancing act for many clients in deciding whether to create and fund a bypass/shelter trust for estate tax protection, or to forego the traditional structure in order limit potential in- come tax liability. Such consideration is made even more perplexing by the fact that the TCJA is set to sunset as of January 1, 2026, if not repealed soon- er, at which time the lifetime exemp- tion amount will revert to the prior exemption amount of $5,000,000, ad- justed for in ation. Needless to say, if one had a crystal ball which would give one’s date of death, asset type and value, and remaining lifetime exemp- tion amount, the balancing act would be much simpler.
In order to address these complexi-
ties, a last will and testament can be dra ed to enable the Independent Ex- ecutor to consider, at the time of the testator’s death, how best and whether to fund a bypass/shelter trust or mari- tal/QTIP trust.  is consideration could be based upon the testator’s re- maining lifetime exemption amount, the date-of-death values of the assets, whether the assets are likely to appre- ciate in value, or whether the assets will be sold in the future. Such con- siderations also enable the Indepen- dent Executor to determine whether a Federal Estate Tax Return (Form 706) should be  led in order to elect porta- bility of the deceased spouse’s unused lifetime exemption amount, if any.
ADDITIONAL BENEFITS OF TESTAMENTARY TRUSTS
Aside from the estate and income tax considerations that must be given when dra ing a client’s last will and testament, an attorney must also con- sider other bene ts a testamentary trust can provide to the bene ciaries under the testator’s Will. Including a testamentary trust in the client’s estate plan can provide creditor pro- tection to assets le  to a bene ciary and can help address substance abuse issues by controlling if and when dis- tributions may be made. Further, if
Patty Vargas is Board Certi ed in Estate Planning and Probate Law by the Texas Board of Legal Specialization. Her practice concentrates on probate, estate planning, including family wealth transfers, trusts and guardianships. She is a Fellow of the Texas Bar Foundation and the San Antonio Bar Foundation. She is a graduate of Leadership Texas (2014) and currently serves on the Board of Governors for the San Antonio Estate Planners Council. Patty received her undergraduate degree from Rhodes College (1999) and her law degree from St. Mary’s University School of Law (2002).
ATTORNEY AT LAW MAGAZINE · SAN ANTONIO · VOL. 1 NO. 2 10


































































































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