[WSBAPT] Using Community Property Agreement to Equalize Estate Assets in 401K to fund credit shelter trust

[David Faber]

I'm working with clients who have a total of about $4mil in assets, about
$2.5mil of which is held in a 401K that is, of course, held in just one
spouse's name. The spouse who owns the 401K is highly likely to outlive the
death of the other spouse. The spouses want to use a credit shelter trust
to avoid unnecessary estate taxes at the second death, so my thought was to
use a Community Property Agreement with express inclusion of the 401K to
equalize assets, then at the death of the first spouse (if they die in the
order we presume) we would use the Community Property Agreement and a
disclaimer to shunt a portion of the 401K into the Credit Shelter Trust.
Has anyone tried this method? We need a method of converting some part into
an inherited IRA at the death of the non-owner, and this should
theoretically work, but I haven't been able to find any literature on the
topic. I presume we might need a court order at the first death directing
the division, which I do not anticipate to be a problem, but I want to
confirm whether anyone on here has used this method.

Thank you!

Best,
David J. Faber
Faber Feinson PLLC
800 Polk Street, Suite B
Port Townsend, WA 98368
(360) 379-4110

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