How does the federal estate tax exemption work? The tax on the decedent's taxable estate is calculated and the unified credit of is subtracted from the amount due. The credit cannot reduce the tax below zero so if a person dies with less than the current exemption, the unused credit is wasted. Due to way the estate tax is calculated, any estate over the exemption amount is in the 37% estate tax bracket. 6/28/1997
	How does the double exemption for married couples work? The exemption works by making sure that each spouse has at least an amount equal to the exemption in his or her own name and leaves the rest to the surviving spouse in a manner that DOES NOT qualify for a martial deduction. A common provision is as follows: As to Subtrust 'B', I, direct that all the annual income be given to my spouse for the rest of her life. The trustee  may invade principal to provide support and maintenance of my spouse during her lifetime.  Upon my spouse's death, I give any remaining income and principal to my children in equal shares. The surviving spouse often serves as successor trustee.
	What are A/B trusts? During the married grantor's lifetime, the trust operates as a single living trust. Upon the grantor's death, the trust is split into a subtrust that qualifies for the marital deduction (marital deduction trust) and a subtrust that does not qualify for the marital deduction (unified credit shelter trust). Together, they are called A/B trusts. The effect of having an A/B trust is that the "A" marital deduction subtrust pays no immediate tax because it is passed to a surviving spouse and the "B" unified credit shelter pays no tax because it is covered by the unified credit. No federal tax is payable upon the first to die and the surviving spouse has the ability to start giving the money away $10,000 per donee per year during her remaining lifetime. Large amounts of assets may be thus distributed tax free. Any assets remaining in the "A" trust are taxable in the spouse's estate when she dies. The assets in the "B" trust were already taxed in the first to die, so they may be distributed to the couple's children without further estate taxes even though they may be worth several million dollars at the time the surviving spouse dies.
	Can a single person have an A/B trust?  There wouldn't be any point because no spouse exists to claim the marital deduction. If a grantor's spouse predeceases him, the trust document usually states that all assets are poured into the "B" trust only and the estate tax due is calculated.
	What types of bequests qualify for the marital deduction? The bequest must be made to a surviving spouse and must be tantamount to ownership. The following bequests would qualify for the marital deduction: I give my stock to my spouse, Mary. I give my stock to Mary Trustee for the benefit of Mary (same person) and she can invade principal anytime she wants for any reason she wants. I give my stock to Mary Trustee for the benefit of Mary (same person) and upon her death, she can give it to anyone she wants by making a general power of appointment in her last Will and Testament.
	What types of bequests DO NOT qualify for the marital deduction? Any bequest to a non-spouse, e.g. children or to spouse that is not tantamount to ownership and does not qualify for QTIP election. The following bequests would NOT qualify for the marital deduction: I give my stock to my children. I give my stock to Mary Trustee for the benefit of Mary (same person) and she can invade principal only for support and maintenance. I give my stock to Mary Trustee for the benefit of Mary (same person) and upon her death, I give it to my children.
	Why do people care about marital deduction wording? The federal estate tax begins at an effective rate of 37% so proper wording is critical. Consider the following examples assuming that John Investor and his spouse own assets in excess of the current exemption: I give everything to my spouse, Mary. Result: When John dies, his entire estate qualifies for the marital deduction reducing his estate to zero; he has just wasted his entire unified credit. I give all the income to my spouse, Mary and upon her death, I give the principal to my children. Result: When John dies, none of his estate qualifies for the marital deduction. His administrator must pay an estate tax on the amount in excess of the tax exemption amount. I direct that my estate be divided into two parts, the first part qualifying for the maximum marital deduction necessary to reduce my estate tax to zero and the second part not qualifying for the marital deduction. My spouse, Mary shall be the beneficiary of both parts. Result: When John dies, no estate tax is due. When Mary dies, any assets remaining in the marital deduction trust will be taxable in her estate.
	What is the effect of titling marital assets as "joint tenants with rights of survivorship".  When a joint tenant dies, his/her entire portion qualifies for the marital deduction. Many times, this tactic is extremely costly because the decedent's is reduced to zero and the unified credit is wasted. As a sidelight, the assets pass outside of probate.