Elder Law Resources:

Demise of Estate Tax Could Have Serious Consequences for Spouses

The estate tax expired on January 1, 2010.  It remains to be seem whether Congress will reinstate it before it returns in 2011, but the fact that there is currently no estate tax can have unintended consequences for spouses.  Standard language found in many estate plans could leave spouses with nothing.  It is important to check with us to make sure your estate plan does what you want it to do.

In previous years, estates could pass a certain amount of assets tax free (up to $3.5 million in 2009). In addition, spouses can receive an unlimited amount tax free. To take advantage of these rules, estate plans often contain a “bypass trust” (or “credit shelter trust”) and a will with language in it that is designed to allow estates to pass without any estate tax. For example, the will may state: “I leave to my trustees the maximum amount that can pass free of estate tax and leave the residual to my spouse.” Because there is currently no estate tax, individuals who die in 2010 with this language in their estate plan could wind up leaving nothing to their spouses.

While most states allow spouses to claim a portion of the estate (usually one-third), even if they don’t receive anything under a will, this can be a time-consuming and expensive process. Some states are considering legislation to fix this problem created by congressional inaction, but to ensure your spouse is covered, you should talk to us regarding how this may affect you.