Estate Taxes
As you may already know we are in uncertain tax planning times. In 2010 there is no estate tax unless Congress takes steps to finalize some solution. Next year the estate tax exemption is slated to be $1,000,000, the same amount it was in year 2000 with a tax rate that can go up to 55%.
Currently, the Senate is about to introduce a bill seeking a $5,000,000 per person exemption with a maximum estate tax rate of 35%; while thehouse had passed a bill in 2009 with a $3,500,000 exemption amount with a 45% highest tax bracket. In a politically active year it is expected that Congress will do something, but that should not be taken for granted.
For that reason, in my view it would be prudent to plan your estate around the $1M exemption amount. This is done by implicating the use of trusts whereby each of you (married Couples) agree to leave your share of the estate to a credit shelter trust instead to each other. This allows the surviving spouse's share of the estate to be no more than his or her half of the total community estate, and hopefully less than $1M. This was the planning many of you had undertaken before and that should be continued, but with a twist.
The twist being that the trust should also make provisions to make the assets in the trust invisible to the long term care financing system or Medicaid. This way, if the surviving spouse needs long term care AFTER the death of a spouse, the assets in the trust cannot be required to be spent down to $2,000, thus assuring the surviving spouse that he/she will not be left penniless and some of the assets will end up as an inheritance with your children. The chances are remote that you will need Medicaid, but the provisions are prudent in these uncertain times.
