How can I plan to avoid federal estate taxes
upon death if my estate is larger than the
Everyone has a lifetime exemption
from federal estate tax during life or upon
death. During your life, you may make gifts of $11,000 or
less per person and not create any taxable
event. If your gift is greater than $11,000,
you may elect to pay a gift tax, or you may
elect to file a gift tax return and utilize part
of your exemption.
If you are married and have more
than the exempt amount, you should not
leave your entire estate to your spouse if you
wish to avoid federal estate tax. Your plan to
avoid tax might look like this:
Husband creates a trust called
“Trust A.” Husband’s trust retains up to the
exempt amount and pays wife income only and also
gives her a right of invasion of $5,000 or 5% of
principal. If husband’s trust has an excess of
the exempt amount, the balance goes to the
surviving spouse outright, using the unlimited
marital deduction. This method allows the
husband to retain his exemption, in addition to
his making maximum use of his unlimited marital
deduction. The wife has the same type of trust
in reverse, and upon the second death, the
husband and wife can now leave twice the exempt
First death — deceased person’s trust pays
income only to spouse.
Second death — twice the exempt amount
tax-free to heirs.
The above plan is
typically called an A-B trust or credit shelter
trust. I simply call it a double tax-saving trust.
A typical estate plan also includes wills called
pour-over wills to accompany the trust, durable
family powers of attorney, deed transfers to the
trust, living wills and instructions for final
arrangements and personal effects.