Husband And Wife Estate Tax Planning  

Married couples with a significant asset value that is more than the amount that is exempted from estate tax should consider revising their wills in order to include a Bypass trust.

A simple will is where the married couple leaves everything to each other. In this case the children will not enjoy the advantage of exemptions they are entitled to under the federal estate tax law.

In a simple will everything passes on to the surviving spouse. After the death of the other spouse, everything passes on to the children. In such cases no estate tax would be charged on the death of the first spouse (because of the unlimited marital deduction); rather the entire estate is taxable after the death of the surviving spouse with an exemption to only the first $675,000. The tax rate starts at 37 percent.

By having a will which incorporates a Bypass Trust and individual takes advantage of estate tax exemption. In so doing, the couple can save a considerable amount of estate tax.  When one of them dies, the deceased spouse’s interest in assets passes on to a Trust with the following provisions:

  • Surviving spouse can be the Trustee
  • All the income can be payable to the surviving spouse.
  • The principle amount can be taken out for certain needs of the surviving spouse.
  • The assets of the deceased spouse in excess of the exemption amount pass on to the surviving spouse.
  • No estate tax is charged on the first death because the trust takes advantage of the exempted amount and the rest is subjected to the unlimited marital deduction.

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