Last month’s article discussed the mess visited upon American taxpayers by Congress—specifically the Senate—by failing to either extend the then-existing federal estate tax (FET) provisions of 2009 or enact new provisions.
The failure to act has created unintended consequences for those who may be subject to the FET. For example, in many instances a classic estate plan is structured to transfer up to the maximum amount that would pass tax-free under the applicable exemption ($3.5 million in 2009 and $1 million in FET in 2011 if nothing changes) to children and other non-spousal beneficiaries, and to transfer anything over that amount to the surviving spouse free of the FET by virtue of the unlimited marital deduction.
In the absence of the FET, this plan could result in the literal disinheritance of the surviving spouse with all assets passing to children or other beneficiaries. To avert such an outcome, the surviving spouse could resort to claiming his/her statutory share under most state laws. But this could be a messy, drawn out, and expensive process. The problem would become more complex in situations of multiple families and where children from prior marriage(s) are involved.
Prudence dictates that you get in touch with your estate-planning counsel to determine what steps, if any, need to be taken to protect the interest of your loved ones.