2010 Estate Tax Issues

The current uncertainty of future estate law makes today a great time to review your estate plan. The Economic Growth and Tax Relief and Reconciliation Act of 2001 (EGTRRA) provided for the repeal of the estate and generation-skipping transfer taxes in 2010. No one really believed the repeal would take place. Yet that is exactly what happened for numerous political reasons…namely the focus on healthcare. This has created the potential for some unexpected and possibly unintended consequences.

Here are some highlights:

• The fact that there is no estate tax is a good thing. However, a potential problem may arise if your estate planning documents use a formula that attempts to minimize any taxes due when dividing assets between trusts and/or a surviving spouse. The lack of an estate tax could make the intent of the formula ambiguous. Your money might be divided in unintended and undesirable ways.
• EGTRRA also ended the ability to pass on assets to your heirs with a step up in basis. That means assets with large, unrealized gains could be passed on with a substantial tax liability if those assets are sold after the transfer.
• Any future changes to the tax laws could be retroactive to January 1, 2010 which must be accounted for when reviewing your estate plan.

These are complex issues that are best reviewed by your attorney. Please take a moment to review your will or trust documents with your attorney to discover any potential pitfalls the lack of an estate tax and basis step may create in your estate plan.