On December 31, 2009, the federal estate tax terminated. Most observers believed that Congress would enact an extension of the tax prior to December 31, 2009. Congress did not do so, however, primarily because of its focus on health care legislation.

It is likely that Congress will pass permanent estate tax legislation this year. This new legislation may be retroactive to January 1, 2010. If so, the retroactivity will undoubtedly be challenged in the courts. The outcome of any such challenge is not predictable.

While we believe that most of our estate planning clients need not amend their existing estate plans prior to the passage of clarifying legislation, there is one important exception: a married person whose will or revocable trust creates a special legacy trust (sometimes referred to as a credit shelter trust or a bypass trust) for the primary benefit of children or grandchildren rather than for the primary benefit of a surviving spouse. The combination of such a will or trust provision and the termination of the federal estate tax could result in disinheriting the surviving spouse. Any client in this situation should eliminate the risk by executing a stopgap codicil to his or her will or an amendment to his or her revocable trust.

For further information about this or other wealth management issues, please contact:

Holly Bastian
bastian.holly@arentfox.com
202.857.8993

Earl Colson
colson.earl@arentfox.com
202.857.6205

Lynn Pearle
pearle.lynn@arentfox.com
202.857.6116