Retirement & Financial Planning Report

In 2009, the federal estate tax exemption increases from $2 million to $3.5 million. Judging by comments made by President-elect Obama during his campaign, this $3.5 million exemption probably will remain in effect in 2010 and perhaps in future years.

Thus, if your net worth is well below $3.5 million, you can do your estate planning without worrying about the federal estate tax. If married couples divide their assets and decide not to leave all their money to each other, they can leave as much as $7 million, free of federal estate tax.

However, state estate taxes might have to be considered. Some states have exemptions far below $3.5 million. In New York, for example, the estate tax exemption is $1 million. Thus, the estate of a New York resident who dies with $3.5 million would owe nothing to the federal government but would owe more than $200,000 to New York State.

A married couple might divide their assets and plan for the first spouse to die to make a bequest to their children, up to the amount of the state estate tax exemption. If the surviving spouse then dies with $3.5 million or less, the couple’s estate can pass to the children with no estate tax.