In June of 2000, President Bush repealed the federal estate tax. Well, not really.

What President Bush did was sign into law a bill that gradually increases the credit every citizen receives against the federal estate tax. Not until 2010 does the new law repeal the estate tax, but only for one year. The estate tax is back in 2011. That’s because the new law expires on December 31, 2010.

Currently, every American citizen receives a credit against federal estate tax equivalent to $1,000,000. In other words, if your “estate” (which includes the death benefit of any life insurance you may own) is worth less than $1,000,000, your estate would not be subject to federal estate tax. In 2004, the credit increases to $1,500,000. In 2006, it is $2,000,000, and in 2009, it rises to $3,500,000. Finally, as mentioned, the new law repeals the tax in 2010.

Yet, whether the estate tax will ever be repealed is subject to great debate. Congress has enacted laws in the past that were designed to alleviate/eliminate the estate tax, only to repeal those laws before they took effect. Between now and 2011 there will be three new Congresses and, at least, one new President.

The state of the economy, a great unknown, will have a tremendous impact on whether or not the federal government can afford a repeal of the estate tax. Who knows what the future will bring. A prolonged recession could easily eliminate any budget surpluses the federal government was able to accumulate in recent years and make a repeal of the tax impossible.

If the law does expire in 2011, we will be back to the law that existed before President Bush signed the new tax act. If that were to happen, in 2011, every citizen would receive a $1,000,000 credit against estate tax, because that is what everyone would have received as a credit under the old tax law.

Well, what if you currently have a taxable estate? Let’s say you are presently worth $1,500,000, what type of planning should you do?

Assuming that your estate does not increase in value between now and 2004, your estate would be exempt from federal estate tax, since the credit equivalent will be equal to the value of your estate at that time. But what if you don’t die? Let’s think positively and assume that you live beyond 2010 and that your estate increases in value. Say you find yourself in 2012 worth $1,800,000. Or, assume that unforeseen and unfortunate events occur and you pass away either this year or the next with $1,500,000. What can you and your spouse do to ensure that your estate is not subject to federal estate tax?

A common technique a married couple can employ to avoid estate tax is called a credit shelter trust (CST). A CST would be written into both the husband’s and wife’s Will. The CST is designed to provide support to the surviving spouse. In order to ensure the funding of the trusts, the assets of the couple must be titled in such a way that the husband owns approximately 50% of the couple’s combined assets and the wife owns the remainder.

If the husband passes away, his 50% of the couple’s estate would pass into the CST that is contained in his Will. The wife could withdraw money from the trust for her health, support, and maintenance. In fact, she could even be the trustee of the trust. And, she still has 50% of the couple’s assets in her name.

Now, an estate worth $1,500,000 or more (currently up to $2,000,000) is exempt from estate tax, because the husband took advantage of his $1,000,000 credit and the wife still has her $1,000,000 credit to shelter the remainder of their $1,500,000 estate.

If the couple wanted, they could place CSTs in their Wills, but state that the trusts are only funded if the surviving spouse “disclaims” his or her share of the estate. The Wills would be worded in such a way that everything passes to the surviving spouse outright, free of trust, but the deceased spouse’s share of the estate passes to the CST in his or her Will if the surviving spouse says he or she doesn’t want the inheritance. In other words, the surviving spouse “disclaims” the inheritance. If the surviving spouse does disclaim, the inheritance passes into a CST for the surviving spouse’s benefit.

“Disclaimer Wills,” therefore, allow for post-mortem planning opportunities. They also allow people who are on the fence about tax planning to put a provision in their Wills that allows them to wait-and-see if the estate tax does in fact affect them. In these changing times, Disclaimer Wills are a great planning technique for people with potentially taxable estates.