Wills and Trusts: Congress’ Failure to Act Forces Estate Plan Reviews

This past February, I did a blog discussing the fact that Congress has eight years to fix a problem, but suggested that it would be fixed sometime during 2010.  Well, it is now late August, and Congress has still not been able to deal with this problem leaving many taxpayers and families unsure of how to proceed, not to mention their estate planning attorneys.  The August 16, 2010, entry in The Wisconsin Law Journal may have summed this up the best: “It’s an old adage that the wheels of government spin slowly, but few attorneys would have predicted the glacial pace of estate tax reform in Congress, which has led to the repeal for the tax of 2010 and the potential reset of the tax next year to its highest level in a decade.”

On June 18, 2010, CNNmoney.com pointed out that in 2009, the per person exemption amount was $3.5 million, and, in 2011, it will be reduced to $1 million.  As I have reminded you in my prior blogs, this $1 million includes any insurance proceeds paid on a policy owned by the decedent.  The top estate tax rises to 55%.  CNNmoney.com’s prognosis was stated: “Optimists still hold out hope Congress will offer clarity before 2011, but the smart money says it won’t come before the mid-term elections in November.  Then again, who knows?”  Investment News agreed in a July 28, 2010, article wherein it indicated that it was unlikely the legislators would make progress until perhaps the mid-term elections in November were accomplished and discusses the massive problem presented to those Americans attempting to do estate and financial planning.

USAToday.com discussed this very issue on July 23, 2010, quoting Richard Behrendt, an estate planning attorney and former IRS attorney.  Mr. Behrendt suggested that at the end of 2009, wealthy families had an incentive to keep an ailing parent alive until January 1, 2010.  Going into 2011, however, Congress’ failure to act could cause some wealthy people with terminal illness to hasten their own demise, suggesting their inaction is influencing people’s decisions to live or die.

Plain and simple, Congress has now had nine years to deal with this problem.  They have given themselves less than four months to resolve it prior to 2011.  If Congress does not address this issue by the end of this year, estates valued at $1 million will indeed be subject to estate tax, with the top tax rate going sharply up to 55%.  Yes, that is more than half of every dollar going to pay taxes.

Be comforted that the writers and so-called experts on this matter all agree something will eventually happen.  They all tend to agree that the exclusion amount will not remain at $1 million, but be raised to something like $3.5 million.  Keep in mind, these are all the same experts that assured we estate planning attorneys this would be resolved by the end of last year, then assured us it would be resolved by August, and yet, here we are.

The bottom line is that it is time to begin preparing for the estate tax value to go back to where they were before President George W. Bush’s cuts.  When, and if, Congress deals with this issue, then the estate plan can be dealt with accordingly.  I would caution to do what it possible without making permanent, irrevocable decisions.  If, in fact, the tax rate goes down to $1 million, many more people will have a taxable estate, and many of those will not realize it without a review by a competent estate planning attorney.


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