As many people are now aware, Congress has (at least for now!) let the federal estate tax die. The federal estate tax is scheduled to come back in 2011 and in future years after that. In future years, estates worth as little as $1 million dollars are scheduled to be taxed (compared to estates worth more than $3.5 million dollars in 2009). It is still believed that at some point this year Congress is going to reinstate the federal estate tax, perhaps retroactively (there is speculation that the $3.5 million dollar exemption from 2009 will continue; of course most people thought Congress would never let the federal estate tax expire in the first place). Due to the current repeal of the federal estate tax, there are two issues that you may have in your current will that you should review with your trusted estate planning advisor:
Issue 1: Your Estate Plan is Written to Leave Too Much to Your Children and Nothing to Your Spouse.
Some estate plans have been written to leave as many assets as possible to the testator’s (a person who makes a will) children (or to a trust for the benefit of the testator’s children) without triggering a federal estate tax, with the remainder going to the testator’s spouse. If a testator died in 2009, $3.5 million dollars would have passed (estate tax free) to the testator’s children (or the trust), with the balance going to the testator’s spouse. As of today, the current federal estate tax exemption is unlimited, therefore, a testator dying today would leave his or her entire estate to his or her children (or the trust), leaving nothing to his or her spouse; this is clearly an unintended consequence of the expiration of the federal estate tax for many people.
Issue 2: Your Estate Plan is Written to Leave too Little to Your Children
This issue is not as serious as the one above, but may still concern some people. If your estate plan was written in a specific year to leave the then current federal estate tax exemption to your children (i.e. you had your will drafted in 2009 to leave $3.5 million dollars to your children), it was a good plan while the federal estate tax was in place, as you could leave the specified federal estate tax exemption amount to your children, with the balance going to your spouse. Now, with no federal estate tax, you may desire to leave even more to your children, so it may be time to review your will.
Even if you do not have the above issues in your current will, it is important to have it reviewed by an estate planning professional. Estate planning done over the years often considered the then current federal estate tax. If Congress does not act this year, the federal estate tax will be $1 million dollars in 2011, an amount that will require additional estate planning for many people.
As it is unclear what Congress will do, if anything, about the expiration of the federal estate tax, please check back often for further updates as we move forward in 2010.
