Increase in Estate Tax Exemption Could Alter Will Distribution Plans

The increase in the estate tax exemption between 2001 and present could have unintended consequences for some wills.  Specifically, spouse’s whose wills contain a bypass trust for the benefit of their surviving spouse could risk altering the spouse’s true intentions.  Laura Saunders, in Is There a Trap Lurking in the Language of Your Will, WSJ, Oct. 15, 2009, offers an good example of the possible consequence:

Say a couple with $4.5 million of assets made wills in 2002, when the exemption was $1 million. . . . The will’s language directs the full exemption amount into a trust at [the husband’s] death, with the income to the [wife] for life and the remainder to heirs—which, if he died in 2002, meant $1 million would go into the bypass trust, and $2.5 million would transfer to his wife. But if he dies in 2009 or 2010—assuming the exemption remains at $3.5 million—she would get nothing outright. All of his assets would go directly to the bypass trust.

The lesson: Review wills for language directing “the full exemption amount” into a by-pass trust, and if the will contains such language, verify that the will still meets its intended goals.

Special thanks to Patrick S. Sylvester (Attorney & Counselor at Law, Sylvester Law Firm, PC) for bringing this article to my attention.