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Trusts and Estate Taxes for Married Couples
Married couples can "double" their estate tax exemption with a trust, such as a Disclaimer Trust, Bypass Trust or A-B trust.
Without a trust, when the first spouse passes, the surviving spouse inherits all the assets without paying any estate taxes. When the surviving spouse passes later, the surviving spouse has only his/her exemption. The opportunity to utilize the first spouse's exemption passed.
Using a Bypass Trust / A-Disclaimer Trust allows the surviving spouse to split an existing trust into two trusts: one for the surviving spouse and one for the deceased spouse. Assets are split between the two trusts so that each spouse can claim an exemption. This step must be done within nine (9) months of the first spouse's passing.
An A-B trust splits the assets before either passes. However, assets in the deceased spouse's trust are typically off-limits to the surviving spouse, unless the surviving spouse's trust is depleted and needs health, education, maintenance or support. Only income generated by the deceased's trust may be
used freely by the surviving spouse. If the
estate is under the estate tax limit, an
A-B trust may limit the surviving spouse's
use of assets. A Bypass Trust or
A-Disclaimer may provide more flexibility.
Arizona does not have its own estate tax. However, there is a federal estate tax which a tax on your right to transfer property at your death.
Two important notes:
1. Assets transferring from a deceased spouse to a surviving spouse are not subject to the estate tax.
2. Estate taxes must be paid within nine (9) months of the decedent's passing.
An accounting of all assets and interests in an estate are taken at the date of death along with the fair market value for those assets. This total is the "Gross Estate".
Items in the gross estate: bank accounts, retirement accounts, investments, life insurance payouts, annuities, real estate, jewelry, artwork, business interests, etc.
Debts, mortgages, estate administration expenses and property passing to a surviving spouse or qualified charities can often be deducted to calculate the "Taxable Estate".
Taxable estates under the federal estate tax limits do not owe any estate taxes. Estates over the estate tax limit only pay taxes on the amounts over the federal estate tax limit.
In 2009, the estate tax limit was $3,500,000, meaning if the estate was less than $3.5M there was no estate tax due. Currently in 2010, there is no estate tax based on laws established in 2001 but if the laws are not changed, the estate tax limit will be $1,000,000 in 2011.
On April 2, 2009, the Senate agreed on S.AMDT.873, an amendment to S.CON.RES.13, a non-binding concurrent resolution setting forth the congressional budget for FY 2010, which was later passed. If enacted in the FY 2010 budget, a new $5,000,000 exemption level will be created with a maximum tax rate of 35%.
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