Transferring Spousal Estate Tax Exemptions

Mitchell M. Gans (Professor of Law at the Hofstra University School of Law) and Jonathan G. Blattmachr (Partner, Milbank, Tweed, Hadley & McCloy) have recently published their article entitled Making Spousal Estate Tax Exemptions Transferable, Prob. & Prop., Nov./Dec. 2005, at 10.

Here is an excerpt from the authors’ conclusion:

The recent rulings produce a taxpayer-friendly outcome in many cases in which the nonportable nature of the estate-tax exemptions make planning and drafting difficult.  But, until published guidance is issued on some of the complicated issues that the rulings resolve in favor of taxpayers, practitioners may find it prudent to draft conservatively * * *

To implement the strategy approved in the rulings, each spouse creates a revocable trust or the couple creates a joint revocable trust.  The trusts or trust must be funded with a sufficient amount of property before either spouse dies to ensure that the spouse who dies first has a general power of appointment (causing estate tax inclusion under Code § 2041) over an adequate level of property such that his or her exemption will be used optimally.