REVIEW YOUR WILL
By Jonathan L. Mate, Fall 2002
Recently I was asked to review the wills of clients which had been drawn by a very reputable law firm in 1998. My clients are a husband, age 75, and his wife, age 73, each with two children from a prior marriage. All of the children are married and have two children each. My clients have been married for 20 years. My clients’ combined estate of $3,500,000 consists of their home, valued at $500,000, a $2,000,000 investment portfolio and IRAs in the amount of $1,000,000.
As part of their estate plan they were advised to separate their assets into their individual names in order to take full advantage of the estate tax laws then in effect. The maximum exemption from federal estate tax for each individual in the year 1998 was $600,000 and all bequests to a surviving spouse were fully deductible in any amount.
In order to take maximum advantage of the exemption from federal estate tax and to provide for their children from their prior marriages, the draftsman of my clients’ wills provided that upon the death of the first spouse to die, the estate would leave an amount equal to the maximum exemption in effect on the date of death to their children and the balance of their estate to the surviving spouse. This arrangement made adequate provision for the surviving spouse while taking full advantage of the maximum $600,000 exemption, resulting in no federal estate taxes due in the estate of the first spouse to die, and reducing the estate of the surviving spouse by the exempt amount.
This estate planning technique has been used in a variety of ways in order to minimize the estate tax in the estate of the surviving spouse. Many estate planners, including myself, almost always left the maximum exemption amount in a trust for the benefit of the surviving spouse. This arrangement insures that the surviving spouse will receive the benefits of the entire estate of the first spouse to die, while taking full advantage of the maximum exemption.
The Economic Growth and Tax Relief Reconciliation Act of 2001 provided for a complete change in the maximum amount that can pass free of federal estate tax to individuals other than the surviving spouse. The exemptions increase as follows:
Recently I was asked to review the wills of clients which had been drawn by a very reputable law firm in 1998. My clients are a husband, age 75, and his wife, age 73, each with two children from a prior marriage. All of the children are married and have two children each. My clients have been married for 20 years. My clients’ combined estate of $3,500,000 consists of their home, valued at $500,000, a $2,000,000 investment portfolio and IRAs in the amount of $1,000,000.
As part of their estate plan they were advised to separate their assets into their individual names in order to take full advantage of the estate tax laws then in effect. The maximum exemption from federal estate tax for each individual in the year 1998 was $600,000 and all bequests to a surviving spouse were fully deductible in any amount.
In order to take maximum advantage of the exemption from federal estate tax and to provide for their children from their prior marriages, the draftsman of my clients’ wills provided that upon the death of the first spouse to die, the estate would leave an amount equal to the maximum exemption in effect on the date of death to their children and the balance of their estate to the surviving spouse. This arrangement made adequate provision for the surviving spouse while taking full advantage of the maximum $600,000 exemption, resulting in no federal estate taxes due in the estate of the first spouse to die, and reducing the estate of the surviving spouse by the exempt amount.
This estate planning technique has been used in a variety of ways in order to minimize the estate tax in the estate of the surviving spouse. Many estate planners, including myself, almost always left the maximum exemption amount in a trust for the benefit of the surviving spouse. This arrangement insures that the surviving spouse will receive the benefits of the entire estate of the first spouse to die, while taking full advantage of the maximum exemption.
The Economic Growth and Tax Relief Reconciliation Act of 2001 provided for a complete change in the maximum amount that can pass free of federal estate tax to individuals other than the surviving spouse. The exemptions increase as follows:
| YEAR | ESTATE AMOUNT |
| 2001 | $675,000 |
| 2002 | $1,000,000 |
| 2004 | $1,500,000 |
| 2006 | $2,000,000 |
| 2009 | $3,500,000 |
| 2010 | Estate Tax Repealed |
| 2011 | $1,000,000 |
Currently, if either of my clients should die between now and the year 2010, as indicated on the schedule of exemptions listed above, the present will of my clients would result in the distribution of their entire estate to their children without any provision for the surviving spouse. Obviously, this was not their intention.
As you can see, a will which still provides for the maximum exemption to be paid to anyone other than the surviving spouse may result in a much larger bequest to those individuals than was originally planned. This is situation is exacerbated in the many cases where the assets retained by the surviving spouse have lost substantial value due to the recent stock market decline. In light of the recent changes in the estate tax laws and the recent dramatic declines in asset values, it is important to review and possibly update your Wills.
This publication is intended for general information purposes only and does not constitute legal advice. The reader should consult legal counsel to determine how the law may apply to specific situations.
