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The Representor, Legally Speaking , Winter 2010 Issue |
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Courts and Capitols: Congress has changed your estate plan!
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Please do not shoot the messenger, especially since my estate plan does not reflect current law. With all the action on health care, Congress failed to address an extension of the changes previously made in regard to estate taxes.
Effective Jan. 1, 2010, for a one-year period, all federal death taxes are repealed, including the estate and generation-skipping taxes. Since your estate plan was prepared with these taxes in mind, it no longer may accomplish your objectives.
To make matters worse, Congress is discussing restoring these taxes and making them effective retroactive to Jan. 1, 2010. Thus, if you revise your estate plan to reflect the current tax situation, you may have to do so again.
This situation creates numerous possibilities. If prior law is, in fact, restored as of Jan. 1, those who die in 2010 will be subject to the same estate tax liability they faced under prior law - tax at a uniform rate of 45 percent, with a $3.5 million exemption. Alternatively, Congress may choose to restore the estate and generation-skipping taxes with a higher or lower tax rate - and/or a higher or lower exemption amount.
A third possibility is that Congress will restore prior law (either in the same form or with changes) prospectively, creating a "gap period" between Jan. 1 and the effective date of whatever law is passed in 2010. A fourth scenario is that, because of partisan gridlock, Congress may fail to act at all. In this case, the repeal would remain in effect for all of 2010.
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by Gerald M. Newman
ERA General Counsel
Gerald M. Newman,
partner in the Chicago
law firm of Schoenberg,
Finkel, Newman &
Rosenberg, LLC, serves as
general counsel to ERA
and is a regular contributor
to The Representor.
He participates in Expert
Access, the program that
offers telephone consultations
to ERA members.
You can call Gerry Newman
at 312-648-2300,
fax him at 312-648-1212,
or send e-mail to
gerry.newman@sfnr.com.
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Complicating these scenarios is the likelihood of a constitutional challenge, on due process grounds, to any attempt to restore the death taxes retroactively. Such a challenge might well find its way to the U.S. Supreme Court and take years to resolve, resulting in a protracted period of uncertainty.
Your existing estate planning documents very likely use formulas based on pre-2010 rules, with multiple references to the "estate tax," the "estate tax applicable exclusion amount" or the "generation-skipping tax exclusion." For example, a will might direct that an amount equal to your available generation skipping tax exemption be used to fund a trust for grandchildren. Under 2010 law, as currently in effect, there is no generation skipping tax, no generation skipping tax exemption - and, quite arguably, no trust for the grandchildren. Similarly, the direction to fund a family trust with "the greatest amount that would result in the estate not being subject to estate tax" would arguably result, under current law, in a family trust funded with 100 percent of the estate’s assets. This could be an unfortunate result in a situation where the family trust benefits persons other than a surviving spouse, such as in a typical second marriage situation.
I do not know the answers, but strongly recommend that you visit your estate planner to learn the impact of 2010 law on your estate plan. Among the questions to consider are:
- Does the new law change the beneficiaries of your estate in a way that you do not intend?
- Will new ambiguity about how the document should be interpreted lead to family litigation?
Working together, you and your advisors can determine what, if any, action is necessary. In some situations, a codicil or amendment will be sufficient to prevent future potential difficulties. Since we will all live through this situation, we will not be affected. However, "just in case," you should have your estate plan reviewed.
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© 2010 Electronics Representatives Association (ERA), Chicago, IL 60611
Originally printed in the Winter 2010 issue of The Representor
Cannot be reprinted without the permission of the Electronics Representatives Association (ERA) |
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