In our last post we discussed the federal estate tax exclusions that Georgia women can take advantage of. Everyone is entitled to a $5 million federal estate tax exclusion, but this amount can be shifted between spouses. This $5 million tax exclusion is not just for transfers of wealth upon a person's death however.
The exclusion can also be used for lifetime gifts and can be transferred freely between spouses. Therefore even if a Georgia woman has substantially less assets than her husband, she brings a "tax dowry" into the marriage which consists of the $5 million exclusion.
An experienced estate planning attorney should be consulted before a spouse signs away his or her exclusion. Signing away an exclusion can impact the amount of marital funds available for the less wealthy spouse and this can also deplete the less wealthy spouse's exclusion. A less wealthy spouse may sign away an exclusion and find that the wealthier spouse gave away substantial tax free gifts to children from a previous marriage.
When a spouse considers signing away his or her exclusion, the attorney that is consulted should be independent and not hired by the other spouse. Using an attorney hired by a spouse raises potentially problematic conflict of interest issues because it may not be in a spouse's best interest to give away his or her exclusion for another spouse's lifetime gift giving.
To avoid conflict of interest issues, an attorney will likely draft an engagement letter for each spouse which indicates the extent of the attorney's representation and confidentiality clause which indicates whether the attorney will share statements from one spouse with the other spouse.
Source: Forbes, "Estate Planning For Women (And the Men Who Love Them)" Deborah Jacobs, 5/19/11