Sue's estate of $1.35 million can claim her $675,000 exemption. But the estate tax bill on the remaining $675,000 is a whopping $270,750!
The problem with leaving everything to your spouse is that you waste the estate tax exemption of the spouse who dies first.
You see, under current tax law, everyone is entitled to an estate tax exemption. But when Bob left everything to Sue, he wasted his.
If they had planned ahead, they could have used both their exemptions and, in 2000 or 2001, saved $270,750 in estate taxes.
