$3.5 Million Estate Exclusion in 2009

$3.5M Estate Exclusion

In 2009 the estate tax exclusion increased to $3.5M. What
does this mean to you?

• Very few people will be subject to the federal estate
  tax. Some studies (before the market and economic meltdown) suggested that
  $3.5 net worth puts you in the wealthiest 1% of families. So, with a $3.5M
  exclusion few people should fall prey to sales pitches for products or
  documents to avoid an estate tax they won’t pay.

• Many states still have estate and inheritance taxes,
  so some planning may still be in order.

• You still have to balance income and estate tax
  considerations. Example: Assets held until death get a step up in tax
  basis.

• You MUST revise your will! If you left assets to a
  bypass trust when the exclusion was $600,000 or $1M you could face a
  substantial state estate tax if that trust is funded to the full federal
  exclusion of $3.5M if you are domiciled in a state that has a lower
  exclusion. In New Jersey for example, the state tax would be $229,200. That
  is a lot of money to fund a trust that many people will no longer
  need.

• Review how trusts under your will or revocable living
  trust will be funded in the new regime. You might have left $600,000 to a
  bypass trust for the children of a prior marriage with the rest outright to
  your current spouse. With a $3.5M exclusion your current spouse may get
  nothing!