How to Get The Most Out of the Increasing Estate Exclusion Amount
Estate taxes must be paid when you die if the net value of your estate (assets less debts) is more than the amount excluded from taxes at that time.

On June 7, 2001 President Bush signed a tax bill that increased the estate tax "applicable exclusion amount" -- from $675,000 in 2001 to $1 million in 2002, and eventually to $3.5 million by 2009. Notice Congress went so far this time as to "repeal" the estate tax in 2010, but it is automatically scheduled to return in 2011 with the exclusion reduced back down to $1 million.

2002 - 2003
$1 million
2004 - 2005
$1.5 million
2006 - 2008
$2 million
$3.5 million
n/a (repealed)
$1 million

Federal estate taxes still carry a wallop. They now start at 41% and quickly go up, to 49% in 2003. They must be paid in cash, usually within nine months after you die. But with careful planning, they can be substantially reduced or even eliminated. Here's what you can do to get the most out of this ever-changing estate tax exclusion amount.

1. Married? You can "double" your exclusion. By setting up an A-B living trust, both spouses can use their estate tax exemptions and in 2003 protect up to $2 million from estate taxes ($3 million in 2004-2005). But unless you plan ahead, you can waste one spouse's exclusion amount. The cost to your family: $435,000!

2. Check the wording. If you already have an A-B living trust, make sure the language to use your exclusions is flexible and does not state a specific dollar amount (e.g., $1 million). Instead, it should apply a formula or use language such as "the amount that is exempt from estate taxes at the time of the grantor's death."

3. Shift assets. If you and your spouse have separate trusts, you may need to move assets from one trust to the other as the exclusion amount increases.

4. Switch to a trust. If a will is your only estate plan, consider changing to a living trust now. It will probably cost more initially, but it avoids probate, prevents court control of assets at incapacity, and will give you more control over the distribution of your estate after you die.

5. Review your plan annually with a qualified attorney. Your estate plan is a snapshot of you, your assets, your family, your goals and the tax laws in effect at the time it was prepared. Any time one of these changes, you need to review your plan. As frequently as the laws are changing these days, it would be smart to do this every year. A qualified attorney can quickly review your plan and see if any changes need to be made.

NOTE: This information is designed to provide a general overview with regard to the subject matter covered and is not state-specific. The authors, publisher and host are not providing legal, accounting or any other advice which purports to be specific to your situation. The contents of this website are believed to be completely reliable. Nevertheless, some material may be affected by changes in the laws or interpretations of such changes since the material was entered on the website. If legal advice or other expert guidance is required, the services of a competent professional in the field of law, accounting, insurance or investments should be sought.

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