Updates In Regards to the Estate Tax Mess


As my readers are aware, all of us in the estate planning community have been following the mess that Congress created by not passing any sort of law to set the estate tax limits at a permanent level.  As most people now know, the estate tax was repealed effective, January 1, 2010, but is scheduled to be reinstated in 2011 at a rate of 55%.

As a result, many States have taken action and legislatures are introducing bills that would require all estate and trusts to be interpreted as if someone died on December 31, 2009, unless Congress acts to clarify the estate tax law.  On January 12, Virginia was the first state to propose taking action with Maryland, New York and Georgia following closely behind.  The point of this legislation is to carry out what the deceased intentions were and to provide closure and a clear answer to families who are in disagreement where a recent death could result in litigation.  As we discussed in previous blogs an unintended consequent of Congress not acting was there is no “applicable exclusion amount” in 2010.  As a result many estate documents could unintentionally disinherit a spouse or could unintentionally not create a “bypass” trust that will save estate taxes, if any, upon the surviving spouse’s death.  These bills could pass by the end of February and made retroactive to January 1 unless Congress acts.  Federal law always takes precedent. 

*Footnote:  Missouri, the District of Columbia, South Dakota, Minnesota, Tennessee, Indiana, Florida, Ohio, Wisconsin and today Delaware are all drafting legislation to address estate planning documents for decedents dying in 2010 in their respective States.

Also, with the release of the budget yesterday, it appears the office of OMB has indicated that the 2009 level would apply in 2010.  The Wall Street Journal also reported that President Obama has proposed reinstating the estate tax to the levels of 2009 with a $3.5 million exemption with a 45% marginal rate to be extended permanently.  There are different income tax proposals which would eliminate some of the 2001 tax cuts at top rates.

Stay tuned.  I will be writing more on this subject as news breaks.  If you have any questions about your own specific situation or estate planning documents, please send me an email.

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