Estate and Elder Law

2010 Estate Tax Repeal: A Time to Reach Out To Your Clients


                       David R. Schoenhaar, Esq.,  Ruskin Moscou Faltischek
As of January 1, 2010, there is no estate or generation skipping tax (GST), the gift tax remains with a million dollar exemption but at a rate of 35%, and carry over basis rules have been enacted. Of course, all of this is subject to new legislation that is likely to arrive in mid 2010. It is uncertain how long the repeal will last and whether congress will be successful in reinstituting estate and GST taxes retroactively. Regardless of the outcome, now is a perfect time to review client estate plans and reach out to clients regarding how the present environment affects their current estate planning documents.
While there is no direct ethical duty to inform past clients of the estate tax repeal, it would be wise to at least review estate plans that are negatively impacted by the repeal. For example, wills that include a credit shelter trust funded through a federal formula for someone other than the surviving spouse. The formula contains language in determining how the credit shelter is to be funded, which presents problems given the repeal. This language is usually as follows: “a sum equal to the largest amount that can pass free of federal estate tax under this Article by reason of any tax referred to in section 2001(b)(2) of the Internal Revenue Code of 1986.” A plain reading of the language could result in this initial trust being funded with 100% of the estate and leave nothing to the surviving spouse. Certainly this would not be the intent of the decedent and could lead to a construction proceeding and unnecessary litigation over the decedent’s intent.
In addition to correcting any adverse funding formula consequences, when reviewing estate plans with clients, consider larger gifts and/or installment sales that have gift tax consequences this year with a gift tax rate of 35% and outright direct skip gifts while there is no GST tax. However, note that it is important to balance these considerations with the possibility that Congress may be successful in reinstituting estate and GST taxes retroactively.
Given the state of flux, there is no better time to reach out to your clients. Keeping your past clients informed is the right thing to do especially for those who may be adversely affected by the repeal.


David R. Schoenhaar is an associate at Ruskin Moscou Faltischek where he is a member of the firm's Trust & Estates Department.