To compare that young boy’s disappointment in Shoeless Joe Jackson with our Congress’ recent failure to act regarding the estate tax is, admittedly, a stretch of poetic license. However, “say it ain’t so” most accurately summarizes my reaction last New Year’s Day when it became clear that the estate planning practice had been thrown into a quagmire, the likes of which have not been seen for generations!
In a nutshell, the consequences of Congress’ adjournment last year without extending the then existing estate, gift and generation-skipping transfer (GST) tax laws are as follows:
There is no Federal estate tax applicable to the estates of persons dying in 2010, irrespective of a decedent’s total net worth;
Similarly, all wealth transfers ordinarily subject to the Federal GST tax are exempt in 2010;
BUT, the gift tax is applicable to all 2010 irrevocable gratuitous wealth transfers (in excess of exemption amounts) at the rate of 35%;
Assets inherited from estates of persons dying in 2010 receive only a limited “step-up” in tax basis, causing recordkeeping complications and making subsequent sales of those assets by the heirs problematic from the standpoint of capital gains taxes; and
As if all that’s not troublesome enough, the estate and GST taxes are scheduled to return in 2011, with the higher rates and lower exemptions that applied roughly ten years ago.
Oh, and one other point to mention … it’s very possible that the entire estate, gift and GST tax system as we know it (or, should I say, knew it) will be re-enacted in 2010 retroactive to January 1st!
We will continue to monitor this situation, which Senate Finance Committee Chairman, Max Baucus described as “massive, massive confusion”. Meanwhile, for those of you who have implemented estate planning documents consisting of “credit shelter” and “marital” trusts, most estate tax formula clauses will be rendered inoperable for 2010 decedents; this could result in unintended asset allocations among beneficiaries. Accordingly, we recommend a prompt review of those governing instruments to determine their overall effectiveness in the context of current legislative turbulence and your long-term estate planning objectives. Please feel free to contact any of the attorneys in the Blalock Walters estate planning group should you wish us to assist you in that review.