The following scenarios illustrate how different levels of estate planning can carry out your intent and minimize estate taxes (if applicable).

Scenario 1: Simple will. Ted and Marilyn prepare simple “I love you” wills—Ted will leave all of his estate to Marilyn (if living), or to their children if she is not living at the time of Ted’s death. Similarly, Marilyn will leave all of her estate to Ted (if living), or to their children if he is not living at the time of Marilyn’s death. They may supplement this with a simple community property agreement that has the dual effect of binding them to this plan and possibly avoiding the need for probate.

Scenario 2: Trust Will Protects Donor’s Intent and Minimizes Estate Taxes.

Under this approach, Ted’s share of the estate will pass into trust for Marilyn. An amount equal to his remaining federal exemption amount (up to $2 million as of 2008 and up to $3.5 million during 2009) would be placed in trust at Ted’s death, and Ted may name any person (or charity) as beneficiary of that trust. This shields that amount from federal estate taxes. The remainder of Ted’s estate could go outright or in trust to Marilyn. This approach also allows Marilyn to use her federal estate tax exemption to shield an additional amount from federal estate taxes upon her death.