$3.5 Million Estate Exclusion in 2009

$3.5 Million Estate Exclusion in 2009

By: Martin M. Shenkman, CPA, MBA, JD

$3.5M Estate Exclusion

In 2009 the estate tax exclusion increased to $3.5M. What does this mean to you?

  • Very few people will be subject to the federal estate tax. Some studies (before the market and economic meltdown) suggested that $3.5 net worth puts you in the wealthiest 1% of families. So, with a $3.5M exclusion few people should fall prey to sales pitches for products or documents to avoid an estate tax they won't pay.
  • Many states still have estate and inheritance taxes, so some planning may still be in order.
  • You still have to balance income and estate tax considerations. Example: Assets held until death get a step up in tax basis.
  • You MUST revise your will! If you left assets to a bypass trust when the exclusion was $600,000 or $1M you could face a substantial state estate tax if that trust is funded to the full federal exclusion of $3.5M if you are domiciled in a state that has a lower exclusion. In New Jersey for example, the state tax would be $229,200. That is a lot of money to fund a trust that many people will no longer need.
  • Review how trusts under your will or revocable living trust will be funded in the new regime. You might have left $600,000 to a bypass trust for the children of a prior marriage with the rest outright to your current spouse. With a $3.5M exclusion your current spouse may get nothing!

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