The federal estate tax expired at the end of 2009, and this has created a serious problem for many people who haven’t revised their estate documents in a while.
The tax applied in 2009 to estates of more than $3.5 million. It is slated to come back in 2011, and apply to estates of more than $1 million. Most people expected that Congress would “fix” the estate tax before it expired, and there would be a new exemption amount, such as $3.5 million, for 2010 and beyond. However, Congress has done nothing so far — at least as of April, 2010. While it might seem great if there is no estate tax in 2010, it’s actually a problem in many cases, even for people whose estates aren’t anywhere near $3.5 million.
Here’s why: Many older estate documents were set up to avoid taxes by giving children an amount of property equal to the exemption amount, with the remainder being given to the surviving spouse. For instance, if the exemption amount were $675,000 (which is what it was 10 years ago), then $675,000 would go to the children (or to a trust for the children), and the rest would go to the surviving spouse.
But in 2010, there is no exemption amount. So in some cases, the result is that the entire estate goes to the children, and nothing goes to the surviving spouse.
Now it is possible that Congress will fix this by retroactively reinstating the estate tax for 2010. But it is also possible that it will not. Even if Congress does something, the changes it makes won’t apply to the particular language in some documents. So, if you have older documents with such a provision, it could be very wise to revise it now so you don’t wind up accidentally disinheriting your spouse.
I will discuss some of the other problems with the lack of estate taxes in next month’s article.
Ms. MacDonald’s practice is limited to Estate Planning, Probate, Conservatorships, Elder Law and Trust Administration. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 27013 Langside Avenue, Suite A, Santa Clarita, California. She can be reached at 661-251-1300.