Big Increase in Estate Tax Exemption
Typical family can leave over $7 million free of tax
By Kaye A. Thomas
Posted January 9, 2009
Rules for future years remain uncertain.
Well, you made it to 2009, and that means your estate tax exemption has jumped from $2,000,000 to $3,500,000. Your accomplishment has saved your heirs a bundle in taxes — assuming you're going to be leaving them over $2,000,000.
Keep in mind that most families can leave far more than a paltry $3.5 million before hitting the estate tax trip wire. Each spouse gets an exemption of that amount, raising the ante to $7 million. And then there's lifetime giving, and FLPs and CRUTs and CRATs and various other tools of the estate planner's trade that can slide more wealth through the sieve known as the estate tax. From here on in, if you leave less than $10 million to your grateful progeny free of this levy they'll know you messed up somewhere.
Time for a review?
This is a good time for wealthier individuals to get a review of any estate plan that doesn't have a built-in mechanism for dealing with this change in the exemption amount. That's especially true if your wealth has been hit by the stock market turmoil. Consider this scenario:
A few years ago, with an estate of $4 million, you signed a will that says your kids get an amount equal to the estate tax exemption amount (then $2 million or less) and your spouse gets the rest. With your wealth below $3 million after stock losses and the estate tax exemption up to $3.5 million, this plan leaves nothing to your spouse.
Unless your estate plan came from a shrink-wrapped package you bought for $19.95 at Office Depot it's likely to be more sophisticated than that, but you get the idea. It's time for another visit to the wood-paneled office of that lawyer who asks all those unsettling questions about simultaneous death and so forth.
Better yet
Things could get even more interesting if you survive to 2010, when the estate tax is scheduled to be repealed — just for that one year. Realistically, though, it seems more likely that before 2009 shuffles off into history we'll see some kind of compromise on the estate tax, probably leaving the exemption amount about where it is now but indexed for inflation, and possibly with a change in the rate structure. With any luck, we'll also get portability for the estate tax exemption. That would be nice.
