A husband and wife each have their own exclusion amounts that shelter their estates from Federal and state estate tax ation. If the couple's combined assets are greater than the exemption amount set by the Congress or the Massachusetts Legislature, and one spouse dies before estate tax planning steps are taken, the couple may end up wasting a valuable exemption amount.

Year of Death	Federal Estate Tax Exclusion Amount	Massachusetts Estate Tax Threshold
2006	$2 mil	$1 million
2007	$2 mil	$1 million
2008	$2 mil	$1 million
2009	$3.5 mil	$1 million

This happens to couples who are lulled into a false sense of security by federal and Massachusetts revenue regulations that allow you to give everything to your spouse estate-tax-free. But if your estate is worth more than $1 million, the unlimited marital deduction simply postpones the estate tax. When the second spouse dies, his or her estate will include both spouse's assets, and there will be only a single exemption amount! This can result in a federal and/or Massachusetts estate tax that could have been easily avoided with a bypass trust.

The A - B trust strategy can save the two exclusion amounts. Upon the death of the first spouse, the marital trust receives the marital deduction amount for use by the surviving spouse.

The second trust, the family trust, receives the rest of the estate. Assets up to the federal estate tax exemption amount can be left to any non-spouse beneficiary in the family trust, and there will be no estate tax on the estate of the first spouse to die.

Then, if the amount remaining in the marital trust is less than the surviving spouse's exemption amount, there will be no estate tax due upon the death of the surviving spouse. The Federal Estate Tax repeal could hurt the surviving spouse of someone dying in 2010 if the couple has a Marital Trust/Bypass Trust Plan. The wording of the documents may leave all the assets to the bypass trust, cutting out the surviving spouse. If you already have an A / B Trust plan, you should have the wording of the Trusts reviewed. The two trusts can be funded in several ways:

• assets can be passed from the decedent's will to either of the trusts
• assets can be moved into a Living Trust during the lifetime of the couple, and the Living Trust can direct some assets to the marital and family trusts upon death of the first spouse
• assets that pass to the surviving spouse can be disclaimed by the surviving spouse, and then directed into the family trust based on directions in the decedent's Will.

Using the two trust approach, the couple can reduce or eliminate federal and Massachusetts estate taxes that would otherwise be due upon their deaths.

The wording of the Trust or Will determines how assets are directed. There are three types of clauses that can be considered:

• Formula Clause: The formula clause is used because the exclusion amount may change before the death of the first spouse. The formula can be used to describe the amount directed to the marital trust. Example: "The amount that will reduce the federal and Massachusetts estate tax to zero, or the lowest possible amount."
• Pecuniary Clause: a specific dollar amount. Example: An amount equal in value to ..."
• Hybrid: a combination of pecuniary amounts and fractional share formula that may specify a percentage of assets and/or specific assets.

If you're married, and you have assets worth more than $1 million, we can create these trusts for you and your spouse. A bypass trust allows you and your spouse to take advantage of the federal and Massachusetts estate-tax exemptions, and pass your assets to your children or other beneficiaries without the burden of estate taxes.