Flexible Estate Planning for Married Couples in an Uncertain Estate Tax Environment

Blase, James G.
January 2009
Journal of Financial Planning;Jan2009, Vol. 22 Issue 1, p42
Academic Journal
• Estate planning for married couples requires more flexibility in light of changing federal estate tax exemption amounts over the next three years, and a still uncertain estate tax environment. A return to exemption amounts as low as $1 million or $2 million is not likely even under a Democratic president and Congress, though an amount falling below $3.5 million is possible, considering budget deficits. • Planning for estates smaller than $1 million (including IRAs, life insurance, and retirement benefits) is relatively simple. Couples should avoid unnecessarily dividing non-community property assets between them and setting up a credit shelter trust. • Medium-sized estates of $1 million to $3 million are the most challenging size of estate, requiring a case-by-case approach. Part of the challenge is not knowing where Congress will eventually place the estate tax exemption amount. Also challenging is that a recovering stock market could dramatically inflate a couple's estate value. • Using joint revocable trusts with disclaimer trust provisions is a good, flexible strategy. It also provides some asset protection, though disclaimer trusts eliminate the step-up in income tax basis for heirs. • For estates valued over $3 million, equalizing estates remains an important strategy in order to take advantage of separate estate tax exemptions. But planners should not make a blanket decision to always pay IRAs or qualified plan benefits outright to a surviving spouse. • Because of the uncertain future of federal estate taxes, exemption and disclaimer trusts should be drafted with an "escape hatch." • Charitable planning strategies also may need to change for many estates.


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