estate tax newbie question

No, the exemption is $2,000,000 for 2006, 2007 and 2008 The estate tax exemption applies whether you leave it all to your spouse or a crowd of strangers.

What happened to the unlimited exemption for a spouse?

__ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

Technically that's not true. When you leave property to a spouse it is subject to the unlimited marital deduction. The lifetime exemption is left unused. That's the reason that trusts help save estate taxes. Normally one spouse dies and leaves what he has to the other spouse. He doesn't use his lifetime exemption. But when the spouse dies, she just gets one exemption, even though she's considered the owner of all the property accumulated by both spouses. That drives her into a higher marginal bracket, in addition to losing the savings from one exemption. Trusts can help by using the lifetime exemption of the first spouse that dies. It keeps property in that estate out of the taxable estate of the second spouse, while allowing her to manage and have access to it. Stu

I believe you mean "limited access".

-HW "Skip" Weldon Columbia, SC

Limited access if the survivng spouse is the trustee, unlimited access (subject to the trustee's discretion) if she's not the trustee. Stu

I obviously need education.

Are you saying that a credit shelter (or bypass) trust - one that preserves the exemption of the first spouse to die - lets the surviving spouse have unlimited access to principal providing the independent trustee with complete discretion agrees? For example, if the trustee agreed, the surviving spouse could take all of the money out of the trust, marry Julio (or Carmelita), move to Cancun and the children (ultimate beneficiaries) would be left holding the bag? (Agree that this may be considered a far-out example, but it nevertheless is an example of unlimited access with trustee's OK.)

-HW "Skip" Weldon Columbia, SC

Spousal transfers are not exempt. They are a DEDUCTION. That means that a return still has to be filed.

The trust can certainly be drafted that way. Section

2056(b)(5), which mandates that all property over which the surviving spouse has too much control is considered as having passed to her, concludes, "This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events." Stu

I would expect they could. Heck, I don't believe there's any requirement that anyone other than the surviving spouse be the beneficiary. The point of a credit shelter trust isn't to save the money for the kids, it's to save the exemption of the first spouse to die. The ideal credit shelter trust places as little interference in the way of the surviving spouse's desires as is legally possible to preserve the exemption. Of course, pulling all the money out of the trust like that would defeat the purpose of preserving the first spouse's exemption.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Right. If property goes up in value it's best to use up the surviving spouse's property first, to minimixr that chance it eill go over the lifetime exemption amount. If the portion in the bypass trust goes over the exemption amount, well, it's already been excused from estate tax so it's home free on that score. Stu