Congress couldn’t decide – can you imagine that?
For the first time since 1915, the year 2010 brings us a reprieve from estate taxation at death, as Congress has been unable to determine how to deal with the escalating deduction. Going back to 2001, each American could leave $675,000 federally tax free, ramping up in 2009 to $3.5 million dollars, thanks to the Economic Growth and Tax Relief Act of 2001. Year 2010, formally referred to as the “Sunset Year” up to recently has been a quagmire of indecision as to keep the $3.5 million dollar deduction or repeal it to the 2001 levels. Unless Congress takes action, in the year 2011, the transfer tax system will return to its 2001 exemptions and rates. While you may think this doesn’t affect you, if you have drafted a will in the past decade or so, your heirs, and especially your spouse may be dramatically affected.
A commonly used provision in wills is to form a Marital Trust (also called a Credit Shelter Trust, or A/B Trust) upon the death of a decedent utilizing the maximum amount allowed to make use of the tax exclusion of the decedent. The rest, above the current exclusion, would go to the spouse for his or her support and outright ownership based on the terms of the will. Since the Federal deduction is unlimited for 2010, if you pass away this year it is possible for your entire spouse’s inheritance to be tied up in your Marital Trust with no assets passing personally to him or her. If you are thinking of quickly transferring your assets this year, it is quite possible that when Congress gets around to making a decision, it may be retroactive, adding to your need for a large dose of Tylenol.
The wording of your will document will dictate how your estate is distributed, and how much may be transferred to your Marital Trust. With no Federal estate tax this year, you may want to do away entirely with your Marital Trust provision. Your state of residence may effect your decisions for change, and be sure to review the terms of your will to make sure it continues to comport with your wealth succession wishes. In most situations, it may just involve changing some wording of your documents with a short codicil. The above is simply a summery to make you aware of this years tax provision it may be appropriate for you to contact your estate attorney or Certified Financial Planner™ to discuss how this change may or may not be applicable to you.
