No Estate Tax in 2010

In 2001 when Congress adopted the legislation to allow zero estate tax in 2010, the joke was to hope your loved one passed away in 2010. Well 2010 is here and while it sounds like a good thing to have zero estate tax it can cause complications.

When the first spouse passes away most of the jointly owned assets qualify for the marital deduction and pass to the surviving spouse tax-free. The survivor now owns all of the couple’s assets. At the death of the survivor all the assets will be taxable in the estate. Only the estate tax credit of the survivor will be available to offset the tax. Estate tax planning becomes a necessity if you wish to minimize the estate tax. In order to make use of both spouses estate tax credit some of the assets must pass to someone other than the surviving spouse either directly or in the form of a trust. The question becomes how much goes into the trust and how much is given to the spouse.

The wording in the estate document is such that when the first spouse passes the maximum amount is to be given to the trust in order for those assets to be tax free under the estate tax credit. In 2010 the estate tax is zero so the amount passing to the trust would be all the assets. Probably not what was intended when the document was drafted, since the surviving spouse would get nothing. The document will also have wording that a minimum amount in order to qualify for the unified credit is to be given to the surviving spouse. In 2010 there is no unified credit so the maximum that can pass under such a credit is zero. Again probably not what was intended when the document was created.

A new estate document could be drafted to fix this issue if there is a chance your loved will die in 2010. But what do you change to wording to? Congress could meet to address this issue and pass some kind of law retrospectively to have some kind of tax on estates for individuals passing in 2010.

Bottom line is 2010 is here and I am not so sure it is a good year for a loved one to pass away.