Friday, September 17, 2010

Howard’s Inner Circle, No. 21: Being Proactive When There is Uncertainty

A number of speakers at the UJA Federation of New York 41st Annual Sidney Kess New York Tax & Financial Planning Conference urged attorneys, CPAs, and financial planners attending to encourage their clients to review their wills. There was concern that the federal estate tax repeal for 2010 could have a devastating impact on the distribution of property if they died in 2010.

A particularly expressed concern were those wills with formula clauses that assumed the existence of an estate tax. Martin Shenkman with Martin M. Shenkman, P.C. in Teaneck, NJ indicated that relying upon a state-enacted stop-gap law that assumes an estate tax of a certain date for purposes of a formula clause might not work as it could result in the disposition not intended by the actual formula clause in the will.

I believe it was Daniel Daniels of Wiggin and Dana LLP in Stanford, Conn. who opined if a change in a will is needed, a deficient formula clause might be replaced with a bequest to a giant QTIP trust providing flexibility to deal postmortem with the estate tax uncertainty. This is especially true if the estate tax is imposed retroactively to individuals dying towards the end of 2010.

Shenkman also pointed out how the estate tax repeal discourages charitable bequests in a will since there is no estate tax charitable deduction to utilize. He offered a number of alternatives which would result in a deduction for income tax purposes. He also added that similar logic would apply upon reinstatement of an estate tax if the estate is under the estate tax exclusion amount.

Also in dealing with uncertainty, Steven Siegel of the Siegel Group in Morristown, NJ recommends including alternative dispositions when drafting, as this allows for the greater effective utilization of disclaimers to accomplish a desired result despite the uncertainty.

It is extremely unfortunate that the Congress that enacted the “Economic Growth and Tax Relief Reconciliation Act” and subsequent Congresses, especially and including this one, created and continue to perpetuate this uncertainty. In 2001, while I was editor-in- chief of Practical Accountant, I mentioned in a cover story on this subject that a practitioner observed tongue-in-cheek, “Some advisors are having clients sign a living will where the plug will get pulled five minutes before the end of 2010.” My fear is this Congress will take no action in 2010 and a plug might be pulled or someone might commit suicide just before 2010 ends so the death occurs before the estate tax is reinstated.
© 2010
The above may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.

No comments:

Post a Comment