Is Your Trust Flexible Enough to Deal with the 2010 Estate Tax Law Change?, 02/18/2010

Is your estate plan set up to handle the current change in the estate tax law? In 2001 President Bush passed into law the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA). Among many other things, EGTRRA made it so that the applicable exclusion amount from estate taxes increased from $1 million in 2002 to $3.5 million in 2009. In 2010 the estate tax is repealed and then beginning in 2011 the estate tax roars back with a vengeance.

It was thought that Congress would pass new legislation to ensure that in 2010 there would be some type of an estate tax in place. Due to the many other pressing issues Congress has been dealing with, Congress failed to act and has left us in a bit of a quandary as to what will happen in 2010 as far as the estate tax goes.

The following is a summary of the current state of the estate tax law for 2010 (unless changes by Congress occur):

  • There is no estate tax.
  • There is no Generation Skipping Transfer Tax.
  • With some exceptions, there is no step up in income tax basis on capital assets (for more details, please speak with an MH Attorney).
  • The Gift Tax remains in place. There is a $1 million lifetime applicable exclusion and a 35% tax rate for gifts in excess of the $1 million lifetime applicable exclusion amount. The annual gift exclusion amount remains at $13,000.

Many non-MH trusts are not set up to anticipate there being a repeal of the estate tax. While these trusts were fine when drafted, there may be some ambiguity during a year in which there is no applicable exclusion amount. Most likely, an improper funding formula could result in not funding the Family Trust. This could potentially cause catastrophic results to your estate and your surviving spouse. A review of your trust with one of the qualified estate planning attorneys of Morris Hall will discover the changes that can be made in order to avoid these problems.

If you are clients of MH and you have had your trust reviewed in the last three years, your trust is set up to handle these uncertain times in the estate tax law. If you have not been in to see us recently, we highly recommend that you come in to review your documents and make sure your trust is flexible enough to deal with these changes in the law.