With the New Year has come a dramatic change in the estate tax: for persons dying in 2010, there is suddenly no estate tax no matter how large the decedent's estate! Although that may sound good, you had better think again! Many couples set up their estate plans years ago on the assumption that at least a portion of their estate would be subject to tax upon the death of the 1st spouse. They then designed their trusts or wills so as to allocate the tax free portion to the children, allocating only the remainder to the surviving spouse. That often made sense when the "tax free portion" was only a part of the estate and there was substantial additional value to allocate to the surviving spouse. But for 2010, the "tax free" portion is suddenly 100% of the estate! Thus, for estate plans that still describe the children's portion in terms of the "tax free" portion (or use legal formulae with similar effect), that may now suddenly require that– for the estate of a parent who dies in 2010 – the children may now get the entire estate! This is of special concern where the parent has remarried and the bulk of his / her estate is the decedent's separate property.
There are more surprises waiting: the estate tax is scheduled to return with a vengeance in 2011. Beginning in that year, only the first One Million Dollars will be free of estate tax (as compared with $ 3.5 million in 2009). Complicating the matter still further is that Congress could enact remedial legislation later this year to address these concerns. If it does so, Congress may seek to make the changes retroactive to the beginning of this year; but, whether retroactivity will be upheld will likely ultimately be decided by the courts, perhaps years down the road. In a word, there is suddenly much uncertainty in the estate planning arena, and this uncertainty may be with us for a long time. Couples concerned about this should have their plans reviewed by a competent professional. At a minimum, they might revise their plans to build in flexibility in order to address future changes in the law as they unfold