The federal estate tax exemption has increased from $675,000 in 2001 to $3.5 million in 2009. Many observers believe it will stay at $3.5 million, at least for a year or two.
Many people have stated in their will that a "credit shelter" or "bypass" trust will be created at the death of the first spouse. Assets from that spouse’s estate go into the trust; the surviving spouse usually has some access to the assets in that trust. At the second spouse’s death, the assets in the trust pass directly to heirs, often the couple’s children.
The problem? Wills commonly state that the amount passing to the bypass trust will be the amount of the federal estate tax exemption, which is now $3.5 million. If the first spouse to die has, say, $2 million in assets, the entire estate will pass to the bypass trust, out of the easy reach of the surviving spouse.
Therefore, you should review your will to see that it conforms to current law. A married couple with less than $3.5 million in total assets probably won’t be concerned about federal estate tax so an increased focus on the welfare of the surviving spouse may be desirable.
