Estate Strategy

Here's the scenario:
Estate is worth about 1.5 million jointly.
Both husband and wife are still alive.
They want to leave all to children upon their death.

How to shield the remaining 500,000 after the 1M exemption?

Understanding that surviving spouse pays no estate tax at the point of first spouse death. Could it be setup so that upon death of first spouse, a gift is given to children of say 700,000, which is under the 1M personal gift exemption for the deceased spouse. Surviving spouse is OK with this as he/she would still have sufficient resources remaining.

Is this a valid strategy? Or would something else be preferable?

Thanks!

That is certainly one way to go. Remember that the exemption is scheduled to increase to $1.5m in 2004 and $2m in 2006 so you may not have a problem then. You could instead leave the $700,000 or some other amount up to the exemption in a trust that can benefit the surviving spouse, but which wouldn't be includable in the surviving spouse's estate. This is a common estate tax planning technique. I suggest that you consult with an estate planning attorney to construct the best plan for you.