Introduction

The basic concept of the AB will containing a unified credit trust is to not lose the benefit of the unified credit of the spouse that is first to die.  Remember that you can pass any amount to your spouse without estate tax but you can only pass the unified credit amount ($2,000,000.00 in 2008, 3,500,000.00 in 2009, unlimited in 2010, and returning to $1,000,000.00 in 2011 and beyond, but look for legislation in 2009 to change the law regarding 2010 and beyond) to others including your children.  The natural inclination of most people is to pass all or most of their estate to their spouse and then to their children if their spouse predeceases them.  However, a problem arises when the first to die spouse dies and leaves all that spouse has to the other spouse.  The money and property goes to the surviving spouse estate tax free.  But when the second to die spouse dies then that person's estate contains the entirety of the couple's joint estate.  That estate benefits from the unified credit of the second to die spouse but the unified credit of the first to die spouse has been lost because the entire estate of the first to die spouse passed pursuant to the unlimited marital credit and became incorporated within the estate of the second to die spouse.

Solution  

The solution to the problem outlined above is to allow the surviving spouse an election to put as much of the estate of the first to die spouse as the survivor wishes into a unified credit trust after the death of the first.  The unified credit trust by its terms benefits the surviving spouse during the life of the surviving spouse and the children after the death of the survivor.  See our Illustration of the very substantial tax savings that can be realized from using a unified credit trust.