Recently, the amount that a person can pass free of the Federal Estate tax has been changing rapidly.  The current amount that can be passed to heirs tax free is now up to $12.06 Million (2022).  Congress can reduce the amount allowed to be passed tax free in the future.

Previously many retirees had adopted “credit shelter estate plans.”  On a simplified level credit shelter estate plans allowed the clients to get the benefit of two tax free amounts (one for each spouse).  The new tax law allows “portability,” which means in some cases retirees may be able to get the benefit of two credits without implementing a credit shelter estate plan.

These changes in the estate tax area have complicated estate tax planning for many retirees.  Many clients who had an estate tax problem when the tax free amount was $600,000 or $3,000,000 may now find they are now nowhere even near to facing estate tax issues.  Yet some of these retirees may still have credit shelter language in their Wills and Trusts.  The credit shelter provisions may be no longer necessary, and it may be desirable to remove them.  Credit Shelter provisions employ formula clauses, and such formula clauses may or may not be in harmony with the clients’ current estate planning wishes.

For some clients, “portability” may be trap, like the sirens in the Greek classic the Odyssey. The clients may assume that portability will solve the planning problem for them.  But for many clients who still face an estate tax (currently $12 Million and up), credit shelter provisions may work far better for them than relying on portability.  Yet for other clients, portability may be just the ticket.  Using portability has specific advantages for specific clients; those who are still working and face possible issues of liability and asset protection.  Also, clients with pretax assets, such as retirement plan assets, may find portability to work quite well for them. The bottom line is that credit shelter provisions will be superior for some clients, and portability for other clients.

Over arching all other planning concerns is the rapid changes taking place in the estate tax arena.  Some clients deal with the high rate of change by specifically adjusting estate planning for flexibility and changeability.  One way of doing this is to make use of waivers in the estate planning.


There is an entirely new playing field in the estate planning realm.  It used to be that “small” estates were $1 Million or less, and those could ignore planning to save estate taxes.  The old “medium” estate size was $1 Million to $5 Million, and those estate plans usually resorted first to credit shelter type plans.  The old “large” estate was $5 Million and up, and various advanced strategies could be employed to further reduce estate taxes after the credit shelter tax savings were in place.

After recent estate tax changes, the new normal for “small” estates is under $5-7 Million.  The new “medium” estate is $7 -12 Million.  It is not that average estate sizes have greatly increased, it is just that the size of estate subject to estate tax has changed.

  Unfortunately, many clients in the $1 Million to $7 Million are still thinking under the old rules. Yet in this asset range following the old planning strategies can actually be the opposite of good planning.  This is so because of income tax planning and the step up in basis.  The effects of the step up in basis will be different from client to client, depending on the asset mix.  Consult your tax advisor.

Clients who no longer have to consider the effects of estate taxes, due to increases in the tax free amount, are well advised to adjust their thinking to the new laws.  In particular, the income tax consequences of strategies to save estate taxes are often not favorable.  If the estate tax savings disappear, the clients are left with less than optimum income tax results.

Added to the mix is the problem that the laws are changing rapidly, and only renewed at the last minute (or even after the fact).  Clients should consider the possibility of planning for the rate of change itself.  Such planning is possible for some clients by adding flexibility and waivers to estate plans.

To ensure compliance with requirements imposed by the Internal Revenue Service (IRS), please be informed that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code  Neither this document or email nor attachments (if any) are intended to be used as a basis for any client undertaking any transaction or matter addressed herein, unless the client first seeks advice based on the taxpayer’s particular circumstances from a tax advisor.