Estate Tax Update.  Until mid-December, most of us expected that we would end up with a permanent extension of the 2009 version of the federal estate tax law, which would protect the first $3.5 million worth of assets and provide a flat 45% tax rate on everything above that amount.  In early December, the House of Representatives acted to pass legislation imposing a permanent $3.5 million estate tax exemption.  During late December, the Senate, which was mired down with the health care debate, never addressed the estate tax.  Nothing was passed.

As a result, effective January 1st, the federal estate tax was repealed.  Under current law, it will only be repealed for the 2010 calendar year.  Also under current law, beginning in 2011 the estate tax is reinstated with only $1 million protected and a 55% maximum rate above that amount.

We currently have total uncertainty surrounding our estate tax law.  What we do know is that as of January 1st there is no federal estate tax.  We also know that some members of Congress are now saying that they plan on retroactively reinstating the estate tax as if it had not ever been repealed.  Whether the Senate will ever get enough votes to accomplish this is unknown.  Whether a retroactive reenactment of a tax can be done legally is also unknown.

What Does This Mean for You?  As we move further into 2010, we may begin to see action by Congress.  Until then it is important to keep your estate planning documents as flexible as possible.  For most clients, a long-term estate planning view should assume that there will be some form of estate tax in place at your death.  For clients who might be facing death in the near future, the possibility of dying during 2010 without an estate tax may necessitate modifications to the existing estate planning documents.  If Congress is unable to act and we end up in 2011 with the reduced $1 million exemption, then the estate tax will again become a very significant tax affecting many families.  Whatever happens, there will be a need to revise your estate planning documents. 

The most important planning action today is to make sure that your current estate planning documents will work with today's estate tax laws.  At the very least, a review is in order.  In many cases, it may be necessary to amend your existing documents to work in the 2010 uncertain legal environment where there is no federal estate tax.  This is also a good time to confirm that your assets are properly titled to work with your estate planning documents.

Conclusion.Given the uncertainties of the estate tax law at this time, it is difficult to make any long-term generalizations.  We believe it is critical that you consider how the current situation might impact your estate plan.  You need to review your estate planning documents to make sure that they will work with today's law.  This is critical.

We would be delighted to meet with you at your convenience if you would like to explore any of these issues or review your existing documents. At that meeting we will review potential updates or changes with you, based on the effect of current law on your situation, as well as amendments which may be beneficial due to changes in your situation that have occurred since your plan was created.

CIRCULAR 230 DISCLOSURE:  To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.