The following is a communication we will be sending out to our firm’s clients and friends. Since it is of relevance to all of our readers, I am also posting it here.
As you are most likely aware, we are now 1 1/2 months into an unprecedented period when the federal estate tax does not apply. This period will come to an end on December 31, 2010. Few thought that Congress would have let this come to pass. Many have thought that Congress would have acted by now to reinstate the tax for the rest of 2010 (and possibly even retroactively to January 1), but each day ticks by without any resolution.
So what does this mean for the average person with existing estate planning documents? Oftentimes, dispositions in Last Wills and trusts expressly incorporate and reference the available estate tax credits and exemptions in allocating the passage of assets to various persons and trusts. What will happen if someone dies in 2010 when the estate tax credits and exemptions do not exist or apply? No one is really sure – however, there are situations when if the terms of the document are literally applied, unusual and unexpected results may arise. There may also be opportunities to address planning for special asset basis rule adjustments that apply only in 2010.
Some states have introduced or enacted legislation that would treat the decedent as dying on December 31, 2009, for purposes of applying the terms used in Last Wills and trusts. While not a perfect solution, persons in those states will likely have the issue fully taken care of by such laws. Florida is taking a different tack, and may have a new law soon that will allow these issues to be taken before a judge for resolution. Some documents may have already been drafted with an eye towards there being no estate tax in 2010, and thus already have the current situation well covered. For those that are alive and competent, a review of existing estate planning documents may be in order, to assure no problems with a 2010 death or to make changes to avoid an undesirable disposition.
Some situations are more likely to have 2010 issues than others. Particularly, persons who have their assets divided into marital trusts and shares, and nonmarital trusts and shares (often referred to as “family trusts” or “credit shelter trusts”), and have materially different beneficiaries in those shares, may need remedial action – such as where the surviving spouse is the principal beneficiary of one share but not the other. Second marriage situations are a particular circumstance that may require review. Clearly, elderly persons in poor health are more likely to be impacted by the 2010 situation than others.
Most situations will probably not need any corrective action. Further, if the testator survives until 2011 when the estate tax is restored, the 2010 issues go away on December 31, 2010.
Nonetheless, it is usually a good idea to have your estate planning documents reviewed each year for changes in the law, family situations, assets, business circumstances, and other changed facts. Most firms, like our firm, do not undertake a continued client relationship that includes a duty to advise clients of changes in the law that affect their situation, given the impossibility of that task due to the volume of documents, changes in lawyer personnel, and regular changes in the law.
Therefore, we recommend that you give consideration to having your documents reviewed by your estate planning professionals, both for 2010 issues and for an overall review of your situation.