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PENDING LEGISLATION UPDATE
Paul H. Roskoph
December 2010
PRESIDENT OBAMA'S ANNOUNCEMENT ON MONDAY OF THE "COMPROMISE" WITH THE REPUBLICAN MEMBERS OF CONGRESS REGARDING THE EXTENSION OF THE "BUSH TAX CUTS" AND THE ESTATE TAX REENACTMENT IS STARTLING AND UNEXPECTED.
THE ESTATE TAX EXEMPTION OF $5 MILLION DOLLARS CHANGES ALL THE ASSUMPTIONS OF ESTATE PLANNING AS IT RELATES TO THE ELIMINATION OR REDUCTION OF ESTATE TAXES.
THE EXACT DETAILS OF THE PROPOSAL ARE NOT KNOWN. IF CONGRESS APPROVES "PORTABILITY" OF THE EXEMPTION FROM ONE SPOUSE TO A SURVIVING SPOUSE (AS HAS BEEN PROPOSED DURING THE PAST TWO YEARS), IT WILL ELIMINATE FOR ESTATE TAX PLANNING THE NEED FOR THE TRADITIONAL "A/B" TRUST. (THIS A/B TRUST APPROACH IS STILL NECESSARY TO PRESERVE A PLAN FOR DISPOSITION OF ASSETS IF THERE IS A PERCEIVED OR REAL NEED TO ASSURE THAT ASSETS OF THE FIRST SPOUSE TO DIE ARE TO END UP WITH DESIRED BENEFICIARIES OF THE DECEDENT. IF THE SPOUSE IS WILLING TO TRUST THE SURVIVING SPOUSE TO LEAVE THE ESTATE TO THESE BENEFICIARIES, THEN THE A/B TRUST IS NOT NECESSARY, BUT THE A/B TRUST PLAN IS MOTIVATED, MORE OFTEN THAN NOT, BY THE DESIRE TO MAXIMIZE THE ESTATE TAX EXEMPTION FOR EACH SPOUSE. MORE ON THIS IN A SUBSEQUENT ARTICLE WHEN THE ACTUAL BILL IS PASSED AND SIGNED INTO LAW.) IT WILL ALSO REQUIRE A REVIEW OF CURRENT LIFE INSURANCE TRUSTS MOTIVATED BY ESTATE TAX, FAMILY LIMITED PARTNERSHIPS AND LLCs, PERSONAL RESIDENCE TRUSTS AND GRATS (FOR THOSE INDIVIDUALS WHO HAVE USED THESE PLANS TO SAVE POTENTIAL ESTATE TAX).
BOTTOM LINE: IF THIS PROPOSAL BECOMES LAW-EVEN IF IT IS FOR ONLY TWO YEARS - EVERY CURRENT ESTATE PLAN MUST BE REVIEWED TO SEE IF THE TAX MOTIVATED PLAN IS NECESSARY. AN A/B TRUST IMPOSES RESTRICTIONS ON THE SURVIVING SPOUSE THAT MAY BE UNWANTED OR UNNECESSARY.
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