Federal Estate Tax Repealed - Temporarily?
by Maureen Kenney, Attorney
January 2010 -- After a lot of discussion and speculation, the 2009 legislative year ended without any legislative changes to the federal estate tax, generation skipping tax and gift tax. As a result, as the law currently stands, the federal estate tax and the generation skipping tax have been repealed for all deaths occurring in the calendar year 2010.
If there are no legislative changes made in this calendar year, on January 1, 2011, the federal estate and generation skipping taxes will be reinstated with a one million dollar exemption. The federal gift tax is still in place with a one million dollar exclusion.
The expiration of the estate tax may have implications with respect to your current estate planning documents. If your estate plan included a formula to take advantage of the federal estate tax exemption amount, it is unclear how that formula will be interpreted under the present law. Some commentators believe that the formula will be interpreted to distribute everything to the Credit Shelter Trust (Family Trust), leaving no assets under the direct control of your surviving spouse. Other commentators suggest that the formula would pass everything to the surviving spouse or to a Marital Trust created for the spouse, leaving no assets to fund the Credit Shelter Trust (Family Trust) and perhaps resulting in the payment of additional estate taxes at the death of the spouse.
At this time, we do not know whether Congress will be enacting legislation to change the current law for the year 2010 and we do not know whether that law will be retroactive to January 1, 2010. We do not plan to review our estate planning documents at this time, but will wait to see what legislative changes are made. Once we have a better sense of the permanent status of the federal estate tax and generation skipping tax, we will be communicating with our estate planning clients. In the meantime, if you have any questions or concerns about your estate planning documents, please do not hesitate to contact us in Cedar Rapids (319.363.0101) or Iowa City (319.466.1511).