Rothman Gordon: Ownership of Assets, Part VII: Long-Term Marriages

Ownership of Assets, Part VII: Long-Term Marriages

Couples who have been married for many years, say 25 or more, generally have different concerns from those couples more recently married. Reducing the impact of Federal Estate Taxes and Pennsylvania Inheritance Taxes, and costs of administration often become the major concerns. Children's education is behind them and divorce is less common in such cases, particularly with first marriages.

As the size of the estate which can pass from parents to children tax free increases (now $1.5 million, increasing to $2 million in 2006, and $3.5 million in 2009), married couples might choose to hold a major portion of their assets in joint names as tenants by the entireties. Such assets pass tax free to the survivor without administration of the estate. The couple must be aware, however, of the uncertainty of the Federal Estate Tax provisions currently. The Federal Estate Tax is scheduled to be suspended entirely for the year 2010, only to be restored to its pre-2001 status unless Congress takes some action in the interim. Thus, for the year 2011, the amount which may pass free of Federal Estate tax will be only $1 million adjusted for inflation from the year 2006. A married couple with $2 million of assets both dying in rapid succession in 2011 might find the estate of the survivor taxed at over $400,000.

While most estate planners believe that Congress will act in the next few years, total repeal of the Federal Estate Tax seems unlikely. What we do expect is that exemptions will increase to $2.5 - $5 million. For these reasons, from a pure tax standpoint, we believe that couples with assets of no more than $1 million should own such assets jointly.

For couples with more substantial wealth, each should own approximately $1.5 million in his or her separate name with the balance of their assets to be owned jointly. Of course, as we indicated in prior articles, there are other important considerations. Professionals, particularly physicians, should hold few assets in their individual names because of the risk of malpractice claims.

Articles are not intended to be comprehensive. Readers should not act upon any information herein without seeking specific legal advice from the Firm's attorneys.

We are required by Treasury Regulations to advise that this writing is not intended as a reliance opinion and cannot be used for purposes of avoiding IRS penalties.