Time to Start Expecting Congress Will Do Nothing on the Estate Tax

Time to Start Expecting Congress Will Do Nothing on the Estate Tax

Having an estate plan in place gives you control over your assets, but only if it is up to date.

It is important to review your estate planning documents every few years due to changes in personal circumstances and also due to the frequent changes in the tax and probate laws.

As you may be aware, in 2001 there was a major change in the federal estate tax law eliminating the estate tax for the 2010 calendar year.

Most professionals, myself included, thought that Congress would modify this law before the estate tax was actually repealed. I guess we should never be surprised though when our government does not behave the way we expect.

It is still unclear what will happen with federal estate tax, but unless Congress acts, by the terms of that same 2001 law, the federal estate tax will be reinstated on January 1, 2011 with an exemption amount of only $1,000,000 per person (indexed for inflation). Moreover, the federal estate tax rate will return to a graduated rate, generally between 41% – 55% depending upon the amount of your assets.

Additionally, the change in the federal estate tax law in 2001 caused New Jersey, and many other states, to modify their respective state estate tax laws. New Jersey, in particular, decided to lock in a state estate tax exemption amount of $675,000.

Accordingly, if your Will contains a formula provision to fund certain trusts or bequests, the change in the tax laws could greatly affect where your money goes upon your death and may result in unnecessary taxes being owed.

My recommendation is that anyone who has assets in excess of $650,000 have their Will reviewed. If necessary, they should be revised to build in maximum flexibility to take into account as many reasonably foreseeable outcomes that we might have if the Congress decides to pass a new law or decides not to do anything.