As you may know, under current law, there will be no federal estate tax assessed against the estates of those who die in 2010. However, the federal estate tax will be reinstated with a $1 million exemption and a 45% tax rate on January 1, 2011. Many thought that Congress would have acted by now to set a higher exemption for the estate tax for 2010 and beyond, but so far no action has been taken. If Congress does act this year, whatever changes they enact may be retroactive to January 1st.
How does this affect the average person who already has a Will or Trust in place? It depends. For those with simple Wills and no tax planning, there will be no problem. There is more cause for concern if you have documents that include tax planning language that divides estate assets by referring to estate tax credits and exemptions. Most of these credits and exemptions do not exist for those who die in 2010. It is unclear what will happen if someone dies in 2010 with this type of language in their Will or trust. However, it is certain that in some situations, there will be undesirable results.
If you have existing wills or trusts with tax planning and you are able to make changes, you should review your existing estate planning documents with your estate planning attorney. If your documents divide assets into marital trusts and shares, and “family trusts” or “credit shelter trusts,” and these trusts have different beneficiaries, you may need to amend your documents. Second marriage situations in particular may require review. Elderly persons or others in poor health are more likely to be impacted by the 2010 situation than others and may want to have an estate planning “check-up”.
Most people will not need to take any corrective action. If you live until 2011 when the estate tax is restored, the 2010 issues go away. However, it is a good idea to have your estate planning documents reviewed regularly and adjusted for changes in the law, changing family situations, increasing or decreasing asset values, and other changes. You should consider making an appointment with your estate planning attorney to have your documents reviewed for 2010 issues and for any other changes that have occurred since the documents were prepared.