(Letter given to Potential Clients. This Letter isn't intended to create an attorney-client relationship or to be construed as legal advice)
I am sure that you have read that, due to a surprising failure of Congress to act during the past nine years, the federal estate and the generation-skipping transfer taxes are temporarily repealed in 2010. They are scheduled to revive on January 1, 2011. This one-year repeal, however, may not have any impact on certain state estate taxes.
Your various estate planning documents divide your estate into separate shares in order to minimize estate taxes. These divisions are made by formulas that use terms defined by the federal tax laws. The absence of an estate tax and a GST tax may therefore render unclear some of the formula language used in your documents. We believe that these ambiguities should be clarified as soon as practicable, and that other changes may need to be made to your documents to take advantage of certain tax planning opportunities that exist in 2010.
Because of the temporary repeal of these taxes, another important change in the law, which can have effects beyond 2010, is that property received from a decedent's estate will now take a basis for purposes of determining gain on the future sale of the property equal to the decedent's basis. Previously (and again starting next year for decedent's dying after 2010), these assets received an adjusted basis equal to the fair market value of the property on the date of the decedent's death.
This change in the law is quite complex, and each estate has a right to increase the decedent's adjusted basis by up to $1.3 million, which increase can help reduce or eliminate future capital gains taxes payable by the estate or beneficiary. Additionally, where the decedent is survived by a spouse, an additional increase of up to $3 million may be given to property received by such surviving spouse, further reducing future capital gains taxes payable by such spouse. Wills and revocable trusts should include special provisions regarding such allocations.
Please call our office as soon as possible, and we will gladly schedule time to meet with you and review your estate planning documents. In some cases, no changes will be required. In others, we will recommend changes. We cannot know, in advance, whether your documents will require Page 2 of 3
changes to best take advantage of the current state of the estate tax law until we have a chance to review your documents with you.
Even if your documents do require changes, we will attempt to keep them as minimal as possible, in keeping with the limited duration of their usefulness. Nonetheless, we strongly believe that it is important that your estate planning documents should produce the result you would want even if you die in 2010.