Don’t both spouses automatically receive the $1,000,000 applicable exclusion amount for a total exemption of $2.0 million in 2011 without doing anything?

No!  In order for married couples to fully utilize both spouse’s applicable exclusion amount of $1,000,000 in 2011 (assuming no new estate tax legislation), a plan must be in place.  Unless they want to give assets to someone other than each other, their estate planning documents, whether in a will or a trust, must plan for the creation of a credit shelter trust at the first spouse’s death. Because clients do not know which spouse will be the first to die, both spouse’s plans should provide for the utilization of such tax credit shelter trusts. Many spouses believe that such credits would be given automatically, sheltering $2.0 million assets in 2011.


In reality, when one spouse provides in a will or trust to leave everything to the surviving spouse outright, then the first spouse to die does not use their $1,000,000 exemption, but instead places everything in the potential taxable estate of the surviving spouse. There is no tax at the first death due to the unlimited marital deduction. However, at the second death there will only be $1,000,000 that can pass without tax. The amount of assets above the exemption will be taxed at a rate of up to 55%. In order for both spouses to provide for each other and receive their own $1,000,000 exemption, they must plan to do so in a will or trust.