If there is no legislation passed in Congress related to the rules for 2010 and 2011, the Wealth Transfer Rules, as established, are as follows:
- Estate Tax Exemption: in 2009: $3,500,000; in 2010: unlimited; in 2011: $1,000,000
- Maximum Estate Tax Rate: in 2009: 45%; in 2010: none; in 2011: 55% + 5% surcharge
- Gift Tax Exemption: in 2009: $1,000,000; in 2010: $1,000,000; in 2011: $1,000,000
- Maximum Gift Tax Rate: in 2009: 45%; in 2010: 35%; in 2011: 55% + 5% surcharge
- Generation Skipping Transfer Tax Exemption: in 2009: $3,500,000; in 2010: unlimited; in 2011: $1,000,000 (indexed)
- Maximum Generation Skipping Transfer Tax Rate: in 2009: 45%; in 2010: none; in 2011: 55%
Why are there vast differences in amounts and percentages? Simply put: politics.
There are many extraordinary consequences which will come to light upon the death of loved ones as things stand now if Congress fails to act and people fail to update their written plans.
For instance, Marital Deduction Formula Clauses, including very hard fought clauses during Pre-Nuptial and Post-Nuptial negotiations and planning, applied to different tax laws than originally intended can result in unintended results. The effects might result in beneficiaries receiving unintended shares or unanticipated estate tax burdens, with others receiving nothing; none of which was the intent of the Trustor or Testator. This might affect many spouses who are not the first spouse as well as children from prior marriages. One can anticipate an upswing in litigation as a result.
While it might be expensive to review legal documents for updates, particularly in troubled economic times and so much legislative uncertainty, it might be less expensive in the long run to go through a document review and update now. When Congress affirmatively acts in this area of law, the documents will need further review.
Individuals who take it upon themselves not to act are personally responsible for their choice. No-one could legitimately blame their former estate planning or family law attorney for failing to advise them of information which has been so well publicized. Such individual choices might impose unfortunate and unconscionable results on loved ones when they are already dealing with a death. These consequences are already occurring. Lives are being devastated, emotionally and financially, as a result.
State law might be used as a tool to correct these problems. But those with a windfall might be inclined to litigate. Those without their expected financial support might find themselves financially unable to participate in protracted litigation. Prudence dictates specific, written plans to be reviewed, without delay.
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