Can an estate plan help reduce taxes?
Yes, in certain circumstances. Married couples enjoy the benefit of being able to pass an unlimited amount of wealth between themselves tax-free. Leaving assets to anyone other than a spouse, however, can lead to a substantial tax liability if the value of the estate exceeds a certain federal exclusion amount. This amount was $2 million in 2008 and increased to $3.5 million in 2009. With proper planning, the spouse who dies first can direct a portion of his or her assets equal to the exclusion amount into a bypass trust. This trust typically benefits the surviving spouse by paying amounts of principal and interest for life. When the second spouse dies, the remaining trust principal is excluded from his or her estate, resulting in a tax savings. The trust principal may then go to any children or perhaps a charity, according to the terms of the trust.
