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Don't hold out for estate-tax repeal

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in Small Business Tax

Q. We’re small business owners with an estate worth about $5 million. My financial adviser keeps pushing me to set up a trust for our three children to avoid estate tax. But I’ve been waiting for the estate tax to be repealed. Am I right to do this? D.D. Cannon Falls, Minn.

A. Probably not. Estate tax may never be repealed. Or, if it is, it could be easily reinstated. Regardless, you should make plans based on the law as it stands: The estate tax will be repealed for one year only — 2010 — before it’s revived in 2011 with a less-favorable estate-tax exemption. Furthermore, your estate plan should take into account the possibility of a sudden and unexpected death at any time. Tip: Setting up a trust for your children may provide other valuable benefits (e.g., protection against a child’s misuse of funds).

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