Estate Tax Repeal is Real in 2010?

Estate Tax Repeal is Real in 2010?

By: Martin M. Shenkman, CPA, MBA, JD

Estate Tax Repeal Is Effective Jan. 1, 2010

Is this real? What does it mean to you? To your heirs? Your clients?

  • Congress' shocking inaction on the estate tax leaves every taxpayer in limbo. No federal estate tax exists effective January 1, 2010, but a complex new set of rules takes over. How do these rules affect you and your planning? Will these rules be changed? When? How?
  • Almost every (perhaps every) tax expert believes Congress will reinstate the estate tax. Most believe a temporary continuation of the 2009 rules ($3.5 million federal estate tax exclusion and 45% rate) will be passed. But will they in fact do so? What do you do, if anything, in the interim?
  • Will Congress make the reinstatement retroactive to January 1, 2010? Can they? Are there legal impediments to doing so? What happens if they don't make it retroactive?

√ How is your will impacted by estate tax repeal? Most wills and revocable trusts have formula clauses based on prior law estate tax exclusions. How does this affect those who inherit from your estate? It may not be just a tax issue. It could dramatically impact the division of assets.


  • Your will was written when the estate tax exclusion was $600,000 and bequeathed the largest amount that would not trigger a federal estate tax to your children from a prior marriage. The balance, which was the bulk of your estate, was to pass to your new spouse.
  • How will this phrase be interpreted if there is no estate tax?
  • Does your entire estate pass to your children and nothing to your surviving spouse?

√ Is your estate plan viable in light of 2010 changes? You should consult with your current attorney, estate planner, tax adviser, insurance consultant, CPA and financial planner, to determine what, if anything, you should do.

Professional Advisers

  • Advisers should consider reaching out to clients, and perhaps former clients, and informing them of the magnitude of the issues and encourage them to address planning.
  • CPAs should consider the rules governing the use of tax return information Treas. Reg. 301.7216, attorneys should consider rules governing attorney advertising. Other considerations might apply.

√Estate tax repeal is effective 1/1/2010. Should you plan or is this just a tempest in a teapot? If you immediately revise all of your estate planning documents to conform to the estate tax repeal landscape, and then Congress reinstates the estate tax, will you have to revise all your planning and documents yet again? Is it worth the effort and cost to revise your documents to endeavor to anticipate all the following scenarios?

  • Repeal stays effective for 2010 and thereafter.
  • Repeal stays effective for 2010 and, thereafter, the laws presently scheduled to take effect in 2011 actually do ($1 million exclusion and 55% tax rate).
  • Repeal stays effective for a short initial portion of 2010, but then Congress reinstates the estate tax using the 2009 rules of a $3.5 million exclusion and 45% rate pending further Congressional action.
  • The estate tax is reinstated retroactive to January 1, 2010, using the 2009 rules.

√ New complex carry over basis rules will determine gain on the sale of inherited assets. If these rules remain law, every will and revocable living trust should be revised to address them. Executors and trustees will need powers and directions to allocate the new basis adjustments permitted. The gift tax is not repealed and remains at a 35% rate.

√While advisers all hope Congress patches the law quickly and retroactively, does the period from 1/1/2010 to the effective date of new legislation present a planning opportunity or an estate planning disaster waiting to happen?

√The January issue of Practical Planner newsletter will provide an analysis of the implications and planning options.

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