Articles   It may be time to review your Estate Plan by Paul H. Burnham, Esq. Significant changes in the interplay between the federal and state estate tax systems, effective January 1, 2004 should cause you to consider, again, your estate plan. With respect to the estates of those passing away between January 1, 2002 and the first day of this year no federal or state tax was imposed upon property passing to the surviving spouse or a charity, nor upon the first $1,000,000 in value of property passing to other beneficiaries. With respect to the estates of those passing away on and after January 1 the exempt amount is increased to $1,500,000, the other exemptions continued, and the maximum tax rate was reduced slightly. These changes result in a tax savings, for some estates of at least $150,000, due solely to the happenstance of the individual’s year of death. Common planning for married couples of sufficient means is for the “exempt amount”, now $1,500,000, to pass from the estate of the first spouse to die (the “first” estate) to the Trustees of a trust for the surviving spouse (the “bypass” trust). No federal estate tax will be imposed on this amount in the “first” estate, nor will any tax be imposed upon the assets in the bypass trust in connection with the “second” estate. The $1,500,000 is scheduled to increase to $2,000,000 on January 1, 2006, $3,500,000 on January 1, 2009, and become infinite on January 1, 2010 (there will be no estate tax that year), before returning to $1,000,000 on January 1, 2011. It is expected Congress will change these provisions in some way between now and 2010, but exactly how is anyone’s guess. Many states have not increased the size of their exemptions, however. New York, for instance, has frozen the exempt amount at $1,000,000 for purposes of its own estate taxes. A New York estate using the bypass trust technique with full funding may incur an estate tax of as much as $64,000 on the “first” death. The results are similar for Massachusetts and Rhode Island estates. Connecticut’s situation is the most complicated. After January 1, 2005, at least pursuant to the current law, there will be no Connecticut estate tax. Between January 1, 2004 and June 30, 2004, the estate tax imposed will be the amount of the credit allowed by federal law against the federal estate tax. Thus, under current law, and assuming use of a fully-funded bypass trust, there will be no Connecticut tax on the “first” death, if such death occurs prior to July 1 of this year or after January 1 of next. For estates of those passing away between July 1, 2004 and January 1, 2005, however, there may well be a significant state tax imposed upon the “first” estate if traditional federal planning is in place – perhaps as much as $83,000. State lawmakers will be under significant pressure to continue this tax treatment beyond the end of this year. Virtually all state estate taxes can be avoided if the size of the bypass trust is limited to $1,000,000. Is it more appropriate in your situation to limit the size of this trust to that amount, thereby choosing not to take advantage of having an additional $500,000 (or more) placed in a credit shelter trust, perhaps to grow estate tax-free from the time of the first death to the time of the second? Maybe, maybe not. What do your current documents provide? More likely than not they may cause the state estate tax to be imposed upon the first estate. Is that what you want?   PAUL H. BURNHAM is a partner and head of the trusts and estates, estate planning and taxation areas of the law firm of Rucci, Burnham, Carta, & Carello, LLP.