Review Estate Plans To Prepare for Uncertainty of Estate Tax in 2013

As I have blogged about numerous times before, the federal estate tax rules currently in place are set to expire at the end of 2012.  If the members of Congress do not act, the “death” tax will rise from 35% to 55% and the $5 million exclusion level will decrease to $1 million exclusion.

A recent case demonstrates why the uncertainty about the 2013 status of the estate tax should prompt a review of estate plans.  A formula clause is a mechanism to reserve the amount excluded by tax law to children in a family while the rest of the estate goes to a marital trust for a surviving spouse. In one case, when a mother passed away, the children argued that the entire estate was theoretically excluded because the estate tax lapsed in 2010.  The children argued they did not have to divide the excluded amount amongst themselves — rather they were entitled to the mother’s entire share of the marital estate, which totaled $100 million.  The probate court agreed with the daughters on that point.

The probate court ultimately ruled against the daughter’s request, however, because the court found that the mother’s intent was thwarted because she created the trust with the $1 million exclusion in mind.  The daughters will now appeal.

See Bryant Law Firm, Federal Estate Tax: What to Expect in 2013, US Politics Today, Aug. 26, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.