Estate Tax – So Now What? Review, Review, Review

The Estate Tax had been repealed!  So now what?  This means that there is no longer any limit to the wealth that can be passed to your heirs without incurring federal estate taxes for the year 2010.

Wills have often been drafted with the expectation that estate taxes would be around for quite some time.  As a result wills have been drafted to direct assets not subject to the tax to be passed on to the children, which for 2009, it was up to $3.5 million.  The remainder of the assets typically were directed to the spouse.  The problem with that is depending on your gross estate upon death, the majority of your assets may pass to your children not leaving much for your spouse.  It is important that you revisit your estate planning documents to ensure that does not happen to you or your children.

Regardless of the size of your estate, it is important that you revisit your estate planning documents at a minimum annually.  As laws and circumstances change, it is imperative that you document what you intend to have happen really happens.  We see in so many instances where estate planning documents and wills are not kept current which only causes major problems when you or a loved one dies.

Although some anticipate Congress to reinstate the tax, retroactively to January 1, there is a big question among some as to whether a retroactive estate tax would even be constitutional.

In addition to the repeal of the estate tax, the generation-skipping tax has also disappeared for 2010.  As a result, people may take advantage by making larger gifts to their grandchildren.  Keep in mind those gifts will still be subject to the 35% gift tax in effect for 2010.  If Congress passes a retroactive law an individual could get hit with a 45% generation-skipping transfer tax in addition to the gift tax.

What happens next?  Quite frankly nobody knows at the moment.  Stay tuned for more information.