A taxable estate is one in which the net value after applicable deductions exceeds the dollar amount of the exclusion/exemption for the year in which the person died. As the exclusion/exemption amount has increased over the years, the number of taxable estates has decreased.
In 2001, the number of people who died with a taxable estate in excess of the $675,000 exemption was 50,500. In 2008, the number of people who died with a taxable estate in excess of the $2,000,000 exemption was 17,000. In 2009, the number of people who died with a taxable estate in excess of the $3,500,000 exemption was 14,700. It is estimated that the number of people who will have died in 2011 with a taxable estate in excess of the $5,000,000 exemption will be 4,300. What about 2010? If form 8939 is timely filed, then the exemption is unlimited but if it is not timely filed, the exemption is $5,000,000.
If a trust for a married couple has been designed to save estate taxes, but if the clients estate is less than the exemption, then there will be no estate tax. The above statistics may help out married clients to realize that if they do not know what happens to their trusts when one spouse has died(ie whether a portion of the trust becomes irrevocable when one spouse has died), then they cannot realize that they may wish to amend their trust to remove the restrictions on the surviving spouse.
The problem is compounded by the fact that the $5,000,000 exemption is scheduled to go back to $1,000,000 for persons dying in 2013 and thereafter, even though it is very possible that Congress will elect to extend the $5,000,000 exemption (or some other agreed dollar figure) to 2013 and beyond. If a portion of the trust becomes irrevocable when one spouse has died, the surviving spouse cannot treat the trust as if it were wholly revocable because he or she believes the irrevocable trust is no longer necessary. Some couples may want to re-state (globally amend) their A/B or QTIP Trusts to Disclaimer Trusts in order to give the surviving spouse the flexibility to deal with the uncertainties inherent in the current law.