When a couple is drafting estate documents, the lawyer will setup provisions for how the estate is to be distributed upon the death of the first spouse. Many attorneys and clients will ask their tax accountant what their will should say. The only truthful answer is, “it depends what you want to happen.”

The most common questions we get from taxpayers contemplating estate documents include:

Is my estate large enough to be subject to the estate tax?
Can we get a step up in basis on the assets from the first spouse to die?
Can I get a step up in basis on the second spouse to die?
How is my estate effected if some of the assets going to a charity or other exempt purpose?
Can I protect the second spouse from deceitful suitors or benefactors and restrict how my half of the estate is used by him or her later?

Also, as your asset mix and beneficiaries change, there will be adjustments needed to the will. In Oregon, the second worst state in America to die in, there is only a $1m estate exclusion, and no portability (i.e. cannot transfer $1m exclusion to a surviving spouse), so taxpayers need to be particularly sensitive as to whether the assets are included in the estate of either spouse. Also, because Oregon is a separate property state, there needs to be more precise planning so the right assets are allocated to get the needed step up.

All of these questions should be considered and regularly updated with your CPA and estate planner. Below is a helpful chart that shows some general rules and terms used for the common types of trusts. While there are exceptions to each of these, and to use a “Yes” or “No” answer for each has some inherit dangers, this chart should provide some insight when discussing your trust at your next visit with your attorney or estate planner!

 Step up
on 1st
Death
Step up
on 2nd
Death
2nd spouse
can freely
Transfer
Principal
Excluded
from 1st
estate
Excluded
from 2nd
estate
Transfer Credit Shelter/Bypass TrustYesNoNo*NoYes
Transfer to QTIP TrustYesYesNo*YesNo
Transfer to Marital Trust (revocable living)YesYesYesYesNo

*Only for Health, Education, Welfare, Support