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Author: mplynch One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121592  
Subject: Re: Inheritance Exemption Date: 10/29/2000 6:37 PM
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>>When a husband and wife have a trust and
>>one dies a new trust B is created which
>>provides for a (currently) $675.000
>>exemption from inheritance tax.

Be careful here. This is NOT automatic.

The typical plan is to establish a living trust. One of the provisions of the living trust is to establish an exemption trust on the death of the settlor/trustee.

Typically, the exemption trust has terms that call for the payment of trust income to the surviving spouse during the surviving spouse's lifetime, and for the principal to go the children upon the surviving spouse's death.

By using these provisions, the exemption trust is not considered to belong to the surviving spouse. Therefore, when the surviving spouse dies, the exemption trust is not considered to be part of the surviving spouse's (that is, the one that dies second) estate.

>>My question is this. When the second
>>member dies do they also get a $675.000
>>exemption giving a total exemption of
>>$1,500.000 ?

Yes, the second to die (the surviving spouse) is also entitled to an exemption. This has nothing to do with the establishment of the trusts.

The reason the trusts (when properly structured) bump up the amount to pass free of tax is because of what I described earlier--the first spouse's exemption trust is not included in the surviving spouse's estate.

If the exemption trust was not set up, that property would be included in the second estate. In other words, BOTH spouses would use their exemption to shield (effectively) the SAME assets.

But with the exemption trust, each spouse can use their exemption on different property.

Estate planning needs to be comprehensive and current rule aware, and trust documents need to be absolutely properly drafted. I recommend you consult with a competent tax advisor and/or legal advisor.

(Probably just a typo, but I should point out that $675,000 times 2 does not equal $1,500,000.)
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