Tuesday, January 26, 2010

Now What?

In my last blog, I discussed the fact that the federal Estate Tax under current law has expired for one year only in 2010.  I outlined how your Estate Planning might be affected in light of these changes.  These new rules that took effect on January 1, 2010 also impact Trust Administration and Probate.

Many married couple's Estate Plans divide the estate into a Bypass Trust and a QTIP Trust upon the death of the first spouse.  It is common for an Estate Plan to include a mathematical formula based on the Estate Tax in order to allocate part of the estate to the Bypass Trust and part of the estate to the QTIP Trust.  In a year such as 2010 where there is no Estate Tax, Successor Trustees will not be sure how to properly interpret such a formula. 

The 2010 rules also abolish old reporting requirements for Trustees/Executors and introduce new reporting requirements.  For estates of decedents dying before and after 2010, the law requires the Trustees/Executors to obtain date of death values for all assets.  If the value of the decedent's estate exceeds the Estate Tax exemption, there is a requirement to file an Estate Tax Return (IRS Form 706).  Under the current rules for decedents dying in 2010, there is no need to file a 706.  However, Trustees/Executors are required to report transfers at death of noncash assets in excess of $1.3 million and certain appreciated property that the decedent had acquired within three years of death. 

Adding to the confusion is the strong belief among many commentators that Congress will pass a new law within the next few weeks or months that will return the pre-2010 Estate Tax rules and have it apply to decedents dying in 2010.  As a result, Trustees/Executors do not know whether to conduct Trust Administrations and Probates based upon the "old" rules or the "new" rules and may not know for some time.   

Because there is so much confusion in this area and we are experiencing an unprecedented uncertainty, I am holding a Free Seminar on February 18, 2010 from 6 to 7:15 pm at 700 Jewell Avenue, Pacific Grove, California.  Please call 831-920-0205 to RSVP.