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Author: murinc Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121334  
Subject: Inheritance Exemption Date: 10/29/2000 6:01 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.
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 ?
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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: 41292 of 121334
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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Author: murinc Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41308 of 121334
Subject: Re: Inheritance Exemption Date: 10/30/2000 11:50 AM
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Many thanks for your excellent explanation.I know enough about trusts to be dangerous and your help has made it clear to me I need professional help.

Again, your time is appreciated.

P.S. Math was never my long suit.

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Author: pilgprog Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41429 of 121334
Subject: Re: Inheritance Exemption Date: 11/2/2000 1:35 PM
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<<<<<<Estate planning needs to be comprehensive and current rule aware, and trust documents need to be absolutely properly drafted.>>>>>>>>>

Could you comment further on this? For example, an estate plan was set up in 1994 or earlier, with an A-B trust. The husband died in 1995, and the wife is still living as I write. Are you saying that such a trust setup requires update to be "current rule aware"?

Also, how do we make certain these documents were "absolutely properly drafted", and if on review now they were found to need change, can they be changed without aborting or jeopardizing the A-B distinction now in force?

allen

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41449 of 121334
Subject: Re: Inheritance Exemption Date: 11/2/2000 8:28 PM
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Could you comment further on this? For example, an estate plan was set up in 1994 or earlier, with an A-B trust. The husband died in 1995, and the wife is still living as I write. Are you saying that such a trust setup requires update to be "current rule aware"?

Once one spouse has passed away, your options are reduced. Typically, one trust becomes irrevocable at the death of the first spouse. The survivor's trust may still be available for amendment, and if so, should be kept up to date. This becomes vitally important if the surviving spouse remarries.

Also, how do we make certain these documents were "absolutely properly drafted", and if on review now they were found to need change, can they be changed without aborting or jeopardizing the A-B distinction now in force?

My first suggestion is to check back with the attorney who originally drafted the trust. If you're unsure of his/her work, you could have a second attorney review it. The problem, of course, is that since one spouse has already passed away, many planning options are now eliminated. Changes to the document may not be possible once one spouse has passed away.

--Peter

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