Chapter 47 - § 47.8 • DISPOSITION OF NON-MARITAL PROPERTY

• Jurisdiction: Colorado

§ 47.8 • DISPOSITION OF NON-MARITAL PROPERTY

§ 47.8.1—In General

The estate plan must provide for disposition of the non-marital deduction portion of the estate as well as the marital portion. The testator/settlor may dispose of the former in any way that he or she chooses.

Often, the testator/settlor desires to leave his or her entire estate to the surviving spouse, subject to certain limitations that will minimize the overall estate tax of the combined estates. Under such a plan, the first spouse to die must leave only the optimum amount of marital deduction property to the surviving spouse, either outright or in a qualifying trust. The property not qualifying for the marital deduction may be available to the surviving spouse in certain respects, but the survivor should not have an interest in or control over the non-marital deduction property that is the equivalent of unfettered ownership, as this causes the property to be includable in the survivor's estate for federal estate tax purposes. The non-marital share may also be made available to family members other than the surviving spouse through outright gifts or through a so-called "family trust."

The foregoing presumes that the value of the surviving spouse's estate will exceed or approach the available applicable exclusion amount and that the addition of the Family Trust will generate an estate tax on the death of the surviving spouse. With the annually increasing exclusion amount, however, the combined value of many married couples' estates will not exceed the available exclusion and, in such case, the benefit of including the Family Trust in the estate of the surviving spouse and obtaining the step-up in basis at the death of the surviving spouse may outweigh any estate tax considerations.

Including the Family Trust in the estate of the surviving spouse with the inclusion of a broad general power of appointment, however, will defeat the purpose of providing some protection for the intended ultimate beneficiaries of the Family Trust. Care must be taken, then, to choose a method of inclusion that will still offer protection to the intended ultimate beneficiaries.

§ 47.8.2—Family Trust: Maximum Benefits to Surviving Spouse

Right to Income

The surviving spouse may be given the right to all income from the non-marital trust without causing the trust corpus to be includable in the survivor's gross estate at death. The income interest ceases at the survivor's death, so there is no estate tax attributable...