Tuesday, March 31, 2009

Estate Planning In The Popular Press, Part II

In an earlier post (you can link to it here), we highlighted several recent articles that discuss the important of estate planning.

In a February 25, 2009 article for the New York Times (you can link to it here), Deborah Jacobs highlights a particular issue that may adversely affect couples' estate plans. The issue is related to the increase, as of January 1, 2009, of the "exemption equivalent" (which refers to the amount that may be left to persons other than your spouse free of estate tax) from $2.0 million to $3.5 million.

Many tax-planning wills (or trusts) include language that maximizes the amount of a deceased individual's estate that can, ultimately, pass free of estate tax by establishing a "credit shelter" or "bypass" trust. This "maximization" is often accomplished by inclusion of a formula, included in the will, that is based on the then-current amount of the exemption equivalent. The combination of (1) formula language in one's will or trust plus (2) the now significantly higher amount of the exemption equivalent, means that there is a potential that a larger percentage (than was originally intended, when the exemption equivalent was lower) of the deceased individual's property will be left in trust -- with strings attached -- rather than outright to the surviving spouse.