Trusts

If your estate's value is greater than the estate tax exemption and you are married, consider using the unlimited estate tax marital deduction to reduce your estate to within the excludable limits. But, do not overfund the marital deduction by keeping assets whose value is less than the exemption amount. Doing so will prevent you from getting the full benefit of your tax break.

You may wish to create a "marital trust," funded with just enough assets to ensure that no estate tax is due upon the death of the first spouse. The remainder of your estate (e.g., your estate tax exemption amount) funds a credit shelter or bypass trust for the primary benefit of the children, which can be available for your spouse during his or her lifetime.

Also, look into the qualified terminable interest property (QTIP) marital deduction trust. QTIP trusts guarantee that your assets will pass to your children when your spouse dies. For a more complete list of trusts used in estate planning, click here.

Scheduled increases in the estate tax exemption may result in the credit shelter trust being funded with the majority of the assets, leaving little or nothing for the marital trust. This could be a big problem for estate plans which were set up before 2002. If you already have a "bypass trust" estate plan in place, review it now to ensure your property will still pass in accordance with your wishes.