Maximize Flexibility & Tax Savings with a Clayton Election Trust: A Guide for Connecticut Families
If you're navigating estate planning as a married couple with a medium to large estate in Fairfield County, Connecticut, the Clayton Election Trust is a tool you’ll want to understand. This estate planning strategy offers rare post-mortem flexibility, tax advantages, and critical control—making it especially valuable. When your assets, legacy, and loved ones are at stake, planning for every possible future scenario is essential.
What Is a Clayton Election Trust?
A Clayton Election Trust is a sophisticated type of revocable living trust designed to offer flexibility after the death of the first spouse. It enables the surviving spouse and the estate’s executor to determine—after death—how to allocate the deceased spouse’s share of the trust estate based on the financial and tax landscape at the time.
Upon the death of the first spouse, trust assets can be split into two primary components:
QTIP Trust (Qualified Terminable Interest Property): This subtrust provides income—and in some cases, principal—to the surviving spouse. Importantly, the remaining assets in the QTIP trust are passed to beneficiaries designated by the first spouse after the surviving spouse’s death. The QTIP trust qualifies for the marital deduction, deferring estate taxes until the surviving spouse passes.
Bypass Trust (also called a Credit Shelter Trust): This subtrust leverages the federal estate tax exemption of the first spouse to die, allowing those assets to pass tax-free to heirs. Because the Bypass Trust is not included in the surviving spouse’s estate, it provides asset protection and shields appreciation from future estate taxes.
What sets a Clayton Election Trust apart is its adaptability. The decision of how much of the deceased spouse’s estate to allocate to each subtrust is made by the executor within nine months of the date of death (plus a potential six-month extension). This means your family can make tax-smart decisions based on actual estate values, exemptions, and economic conditions—rather than guessing years in advance.
Why Consider a Clayton Election Trust?
Post-Death Tax Strategy: The flexibility to allocate trust assets after the first spouse’s death allows the executor to adapt to changing tax laws and the financial needs of the family. This is crucial as estate tax exemptions and rules are likely to shift in the coming years.
Asset Protection: Assets placed in a Bypass Trust are protected from the surviving spouse’s future creditors, lawsuits, or remarriage, helping to preserve the legacy for children and grandchildren.
Preservation of Intent: In second marriages or blended family situations, the Clayton Election structure ensures that the first spouse’s assets are ultimately distributed to their chosen heirs while still supporting the surviving spouse during their lifetime.
Step-Up in Basis Opportunities: Careful allocation between the QTIP and Bypass Trust can allow your heirs to benefit from capital gains tax savings through step-up in basis strategies when assets are passed down.
Marital Deduction Optimization: By using the Clayton Election, the estate can fully or partially elect QTIP treatment, maximizing use of the marital deduction without locking in that decision during lifetime planning.
When Does a Clayton Election Trust Make Sense?
This structure is particularly beneficial for:
Affluent Married Couples: Especially those with assets nearing or exceeding the federal or Connecticut estate tax threshold.
Blended Families: Where one or both spouses have children from a previous relationship and want to ensure equitable, protected inheritance.
Couples with Fluctuating Net Worth: For those whose assets might increase significantly over time or who own complex assets like businesses or real estate.
Families Concerned About Legislative Changes: With potential changes to estate tax laws on the horizon, this trust structure provides adaptability your heirs will appreciate.
Implementing a Clayton Election Trust in Connecticut
Creating a Clayton Election Trust requires meticulous drafting and coordination with your overall estate plan. It is not a one-size-fits-all solution—it should be customized to your specific goals, family dynamics, and tax exposure. In Connecticut, where both federal and state estate taxes can be a concern for affluent families, this planning tool is particularly powerful.
Estate Planning Guidance You Can Trust
At my Wilton-based practice, I specialize in designing customized estate plans for families throughout Fairfield County—including New Canaan, Darien, Westport, Ridgefield, and surrounding communities. My goal is to craft a plan that not only protects your loved ones but also optimizes tax efficiency and long-term security. The Clayton Election Trust is just one of the advanced tools I use to help families preserve their wealth and values across generations. If you're interested in learning whether this strategy aligns with your estate planning goals, I invite you to schedule a consultation.
Estate Planning Attorney | Serving Fairfield County, Connecticut
Let’s plan for the unexpected—intelligently, thoroughly, and with your legacy in mind.
