Was meeting with a super-nice couple today. She had attended my webinar last week and they were ready and overdue on getting their estate plan in order.
They had no children under 24 so there were no forced heirship issues. I was walking them through the usual estate planning decisions, such as:
- what happens if both of them die;
- what happens if they become incapacitated;
- who will be in charge;
- who will inherit from them;
- how can they protect their children's inheritance from a future divorce; and
- how will their future medical decisions be made.
I got to the point of the conversation where they needed to decide whether they would leave ownership or usufruct to their surviving spouse. Until recently, it didn't really matter which they chose. Some couples want to leave things simple and leave ownership to surviving spouse. Some couples want to protect the children from the surviving spouse changing things - so they will lifetime usufruct to their surviving spouse.
NOW IT MATTERS. The couple I worked with today has total assets of about $1 million. If the first spouse to die leaves ownership to the surviving spouse, all the assets will be lumped into the surviving spouse's estate. And with the federal estate tax exemption schedule to be $1 million in 2011 and beyond, we don't want that.
So, as the husband stated, it was a "no-brainer." They decided to leave each other the lifetime usufruct so that the assets of the first spouse to die will not be lumped into the surviving spouse's estate for federal estate tax purposes.
With the estate tax exemption dropping to a mill next year, better revisit those estate plans to make sure there is on unnecessary lumping going on after the first spouse dies. Until next time...