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However, when Wanda dies, she will have an estate of $1,350,000 (or whatever it has appreciated to between Harry''s death and Wanda''s death). free income tax filing, irs forms, tax liens, federal tax id, georgia state tax, ohio tax forms, printable tax forms, louisiana state tax forms, irs 2001 tax table, hillsborough county tax collector, tax tips, tax deductions, california taxes, regional income tax agency, turbo tax 2002, turbo tax online, north carolina income tax, free tax software, colorado state income tax forms, taxes online, florida state sales tax, ir repeater, california tax forms Tax liens. Even if we assume Wanda has not used any of her Applicable Exclusion Amount by making lifetime gifts, she will be able to pass only $675,000 of her estate free of estate taxes (assuming Wanda died in 2000). The property in her estate in excess of $675,000 will be taxed at a rate starting at 37%. In other words, Wanda''s estate will still owe estate taxes of $270,750 at her death. free income tax filing, irs forms, tax liens, federal tax id, georgia state tax, ohio tax forms, printable tax forms, louisiana state tax forms, irs 2001 tax table, hillsborough county tax collector, tax tips, tax deductions, california taxes, regional income tax agency, turbo tax 2002, turbo tax online, north carolina income tax, free tax software, colorado state income tax forms, taxes online, florida state sales tax, ir repeater, california tax forms California tax forms. This is a Marital Deduction Trap because, by allowing all of his property to pass outright to Wanda, Harry did not use any of his Applicable Exclusion Amount. One way for Harry to have used his Applicable Exclusion Amount would be for him to make a Will leaving one-half of his and Wanda''s net worth ($675,000) to their children, outright. Then, when Wanda dies, her estate would be worth only $675,000, all of which could pass tax free because of her Applicable Exclusion Amount. free income tax filing, irs forms, tax liens, federal tax id, georgia state tax, ohio tax forms, printable tax forms, louisiana state tax forms, irs 2001 tax table, hillsborough county tax collector, tax tips, tax deductions, california taxes, regional income tax agency, turbo tax 2002, turbo tax online, north carolina income tax, free tax software, colorado state income tax forms, taxes online, florida state sales tax, ir repeater, california tax forms Irs forms. Although this may result in the desired tax savings, it may not be palatable to most couples. Wanda may protest, "Not only did I just lose my husband, I also lost one-half of our earning potential and one-half of my net worth. " Such spousal impoverishment may not be wise. In order to avoid the outright gift to the children upon the death of the first spouse, yet still make it possible to utilize the Applicable Exclusion Amount of the first spouse to die, Harry and Wanda can put into place what we refer to as "Credit Shelter Planning using a By-Pass Trust Arrangement" (a. k. a. "A/B Trust Arrangement" or "Credit Shelter Trust Arrangement"). Instead of leaving all of their estate to one another, and incurring estate taxes of $270,750 upon the death of the second spouse to die, Harry and Wanda may put into place the following estate plan. First, Harry and Wanda each put into place a will that requires the estate of the first spouse to die to be divided into two separate shares, the "Family Share" and the "Marital Share. " The Family Share will have allocated to it the maximum amount of property which the decedent may transfer free of estate tax after taking into consideration his unified credit - i. e. , the Applicable Exclusion Amount. (See article entitled UNIFIED GIFT AND ESTATE TAX SYSTEM).
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