A well-drafted living trust is not a static document. The rules that determine how much of an estate is exposed to federal and California-level tax change with some regularity, and a plan that made perfect sense in 2018 may now be carrying provisions that create unnecessary tax friction for your heirs.
Why the 2018 law changes matter
The Tax Cuts and Jobs Act of 2017 temporarily doubled the federal estate tax exemption. Most families who previously used a mandatory A-B credit shelter trust no longer need that structure to avoid federal estate tax — and in many cases, the mandatory funding of the credit shelter can actually cost the family a full step-up in cost basis on appreciated assets.
If your trust was drafted before 2018 and you have not reviewed it since, there is a real chance the mandatory A-B funding provision is now working against you rather than for you.
Step-up in basis, revisited
When a spouse passes, assets held in the surviving spouse's share typically receive a full step-up in cost basis at the first death and again at the second death. Assets in a mandatory credit shelter trust receive a step-up only at the first death. For a family whose combined estate is well under the federal exemption, the mandatory credit shelter trade-off is now a net cost.
The right replacement is often a disclaimer A-B trust — preserving the optionality to create the credit shelter if the law reverts or the estate grows, while defaulting to a structure that maximizes the step-up at the second death.
Portability elections
Even when the credit shelter trust is not used, a timely portability election on the federal estate tax return (Form 706) can transfer any unused exemption from the first spouse to the surviving spouse. A thoughtful plan today considers both whether to disclaim and whether to file Form 706 purely for portability — decisions that each family makes with their accountant and attorney.
When to review your trust
- You signed your trust before 2018 and have not amended it.
- You have remarried, divorced, or had a spouse pass away.
- Your estate value has materially changed — either up or down.
- You acquired real estate or business interests not titled in the trust.
- You moved to California from a state without community property rules.
Each of these is a good reason to bring your trust in for a review. We charge a flat fee for a trust review and consultation ($500) and can handle any amendments that come out of that review under the standard amendment fee schedule.
Estate planning is an ongoing relationship, not a one-time transaction. The laws will keep changing — we will keep you informed when they do.