The next thing to consider is the impact of taxes on your estate, particularly estate taxes. There are two separate estate taxes to consider, namely: FEDERAL ESTATE TAX and OKLAHOMA ESTATE TAX.

1. There is no Federal Estate Tax on property passing to a surviving spouse. This means that a decedent may leave his or her spouse any size of an estate and there will be no Federal Estate Taxes due.
2. There is no Federal Estate Tax on property passing to a qualified charity. A decedent dying in 2004 or 2005 may leave any person or group of persons, collectively, up to $1,500,000 [less previous taxable gifts] of his or her Gross Estate free of Federal Estate Tax. This $1,500,000 amount (the "Federal Exemption") is personal to each of us and may be used all on one person or on a group of persons. Once the Federal Exemption is used, the Federal Estate Tax starts at 45%.
3. The Federal Estate Tax is based on the fair market value of your Gross Estate at the time of death. Gross Estate includes all four (4) ways of owning property. Your Gross Estate may also include other property. What you actually paid for the property which makes up your Gross Estate is of little significance. Life insurance owned by you is included in the your Gross Estate at its face value.

1. There is no Oklahoma Estate Tax on property passing to your surviving spouse or a qualified charity. This means that you may leave your spouse any size of an estate and there will be no Oklahoma Estate Taxes due.
2. For the year 2004, you may leave your children, grandchildren or parents up to $850,000 of your Gross Estate (the "Oklahoma Lineal Exemption") free of Oklahoma Estate Tax. The Oklahoma Lineal Exemption amount is personal to each of us and may be used all on one person or on a group of persons. Beginning January 1, 2005, the Oklahoma Lineal Exemption will be $ 950,000. After 2005, it will be $ 1,000,000 with no further future increases in sight. The amount in excess of the Oklahoma Lineal Exemption passing to children, grandchildren, and parents is subject to the Oklahoma Lineal Estate Tax.
3. Property left to persons other than a surviving spouse, children, grandchildren or parents is subject to Oklahoma Collateral Estate Tax on the very first dollar--there is no exemption.
4. Like Federal Estate Tax law, Oklahoma Estate Tax Law is also based upon the fair market value of the property at the time of death.

    As you can see from the foregoing, property passing to a surviving spouse will pass to that surviving spouse completely free of Federal and Oklahoma Estate Tax. Upon the death of the surviving spouse, however, the surviving spouse’s Taxable Estate will incur a Federal Estate Tax if it exceeds the Federal Exemption and there will also be an Oklahoma Estate Tax if the Gross Estate passing to children, grandchildren and parents exceeds the Oklahoma Lineal Exemption or if any amount of property passes to a collateral beneficiary.

    There is a very easy technique to make certain that both husband and wife fully utilize their Federal Exemption. Unfortunately, in order to take advantage of this, you must have a carefully drawn Will or Revocable Trust Agreement. Estate Tax minimization is not automatic. For example, if your Estate is held entirely in joint tenancy with right of survivorship with your spouse, or if you have a "simple" Will which leaves everything to your spouse, the surviving spouse’s estate (i.e. your children) may pay hundred of thousands of dollars in estate taxes which could have been legally avoided. Joint tenancy with right of survivorship will not work!

    The technique used to minimize Federal Estate Taxes involves the establishment of a special trust at the death of the first spouse. This special trust is called any one of the following:

    The Family Trust is designed (written) to: (1) use the Federal Exemption of the first spouse to die to shelter the corpus of the Family Trust from taxation at the first spouse’s death; and (2) not have the Family Trust corpus included in the surviving spouse’s estate at the surviving spouse’s death.

    Generally, the surviving spouse is given the right to all of the income from the Family Trust together with a right to use the corpus of the trust, if needed. The Family Trust is funded (i.e. given property) equal to the Federal Exemption for the year in which the first spouse died. Also, generally the balance of the first deceased spouse's estate (trust) passes tax free directly to the surviving spouse.