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Repeal of Estate Tax Creates Planning Dilemmas (WSJ.com)

by Phil Levin, Esq. on February 11th, 2010

Wall St. Journal:  Spouses of the wealthy who die next year might find themselves with nothing if their wills aren’t revised — another concern due to the one year suspension of the federal estate tax during 2010.  More specifically, effective January 1, 2010, the federal estate tax has been repealed for one year. As a result, unless Congress acts otherwise, and the President signs a new Bill into law, there is no limit to the amount of property an individual can distribute upon death without incurring estate taxes until December 31, 2010.  Often, many Wills have been drafted based upon the expectation that the federal estate tax structure would be in place upon the death of a client. The terms of these Wills typically direct that the balance of assets in a decedent’s estate, which would not be exposed to federal estate taxes, be used to fund a bypass trust and distributed to the children. In fact, in 2009, up to $3.5 million could have been distributed to one or more beneficiaries, other than a surviving spouse, without incurring a federal estate tax.

The typical language in these estate plans generally stated that after funding the bypass trust up to the amount of the exemption equivalent amount, the balance of their estate be distributed either outright or in trust for the spouse. Since current law provides for an unlimited amount of property can be allocated to the bypass trust, the language contained in Wills must be carefully reviewed to ensure that the surviving spouse is not disinherited due to a combination of the impact of current law and the terms of the trust established under estate plans.

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