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A plan for market millionaires
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February 22, 2000: 1:34 p.m. ET
If you have a big nest egg, you have to do more to protect it from taxes
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NEW YORK (CNNfn) - If you and your spouse are lucky enough to have $1 million in assets, you might think you don't need to worry about an estate plan.
If one dies, the other gets the money, right?
The truth is it could leave your property vulnerable to steep estate taxes down the road that robs your children of thousands of dollars of their inheritance, said Roger Levine, an estate-planning attorney who handled such a case.
"You need a will, but you also need tax planning," said Levine, partner in the New Jersey firm Levine & Furman.
A provision in the law allows a surviving spouse to inherit the entire estate tax-free. But the problem is when the second spouse dies, the survivors will face steep estate taxes without proper planning, Levine said.
By law, you can leave $675,000 to your loved ones in 2000 without paying taxes. The amount increases gradually to $1 million in 2006.
Levine recalled that a couple in their 40s who attended one of his seminars had made this mistake. They were both professionals - he worked on Wall Street - who had built up a nice nest egg thanks in part to the strong bull market.
Their assets, including their home, cash and investments, totaled $1 million. They also had a $500,000 insurance policy on the husband's life.
The couple figured that if he died, the estate and insurance policy would go to her tax-free, and she could make sure there was enough money to send their two teen-agers to college.
But let's say she died around the same time. That means the $1.5 million estate would pass to the children. And anything over $675,000 would be subject to estate taxes that start at 37 percent.
Levine recommended they divide their assets, and put half in each of their names. Then he set up a revocable living trust and put all of the assets in it. When the husband dies, his half of the estate would go into a bypass trust that would allow that $500,000 to go to the kids tax-free upon the death of their mother.
When the wife dies, her half of the estate goes to the kids tax-free, too.
Levine also recommended they set up an irrevocable life insurance trust for the insurance policy. The husband transferred ownership of the policy to the trust.
As part of the estate plan, the wife is trustee of the revocable living trust, the bypass trust and the insurance trust, gets all of the income for life, plus 5 percent a year if she wants from both -- and the entire $1.5 million passes to the kids estate-tax free. 
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Levine & Furman
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