Thursday, January 07, 2010

Estate-Tax Repeal Means Some Spouses Are Left Out

From the

Spouses of those wealthy who die this year might find themselves with nothing if the family will isn't revised—a major wrinkle that could follow Friday's repeal of the federal estate tax.

As started on Jan. 1, estate taxes will be repealed for 2010 only. That means unless Congress acts otherwise, there is no limit to the wealth that can be passed on to heirs without incurring federal estate taxes through the end of the year.

But wills have often been written on the expectation that estate taxes were a fact of life for years to come, estate planners say. As a result, wills typically direct assets not subject to the tax be passed on to children—for 2009, up to $3.5 million—with the rest directed to the spouse.

"You could be in a situation now where everything would go into a trust downstream to the kids and nothing is left to the spouse," said Greg Rosica, a tax partner at Ernst & Young. "There is a need to revisit the basic estate-planning documents to make sure that what you intend to have happen really does happen."

Most states allow a surviving spouse to claim a portion of the estate, even if the spouse is disinherited under the will. But doing so can be time-consuming and expensive.

In 2011, the estate tax is scheduled to snap back to higher rates similar to those prior to President George W. Bush's tax cuts. The roundabout series of changes—the result of a compromise to pass the tax-cut legislation—has been on the books for years, but estate planners anticipated congressional Democrats would prevent the 2010 repeal from taking effect.

Blog Archive