Tax Consequences

Example 1 – "I Love You" Estate Plan

Here is an example of a "bad" estate plan: In this example each spouse has $1,500,000 for a total of $3,000,000. The husband dies first and leaves his whole estate to the wife ("I love you darling, here’s everything..."). Things start well. Because of the "marital deduction," the husband’s estate pays no tax:

The wife’s estate receives the husband’s assets and is then worth $3,000,000. After applying the credit equivalent of $1,500,000, the taxable estate is $1,500,000, with a combined state and federal tax consequence in 2004 of about $705,000. (depending on state of residencty at death)

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