Christine Benz: Hi, I'm Christine Benz from MorningStar.com, here with Tom Abendroth. Tom is a partner at Schiff-Harden, and he's also an estate planning specialist. Tom, thanks for being here.
Tom Abendroth: My pleasure, Christine.
Benz: Tom, let's talk about the current state of flux in the estate tax. Currently, there is no estate tax for 2010, which a lot of people in your shoes didn't expect to happen, but here we are.
Abendroth: That's right.
Benz: How should people be thinking about this, and should they be making any changes to their estate plans in light of all that we don't know?
Abendroth: Well, first, stay alive is my first piece of advice.
Benz: So, don't die in 2010, even though the joke was that you should die in 2010.
Abendroth: Yeah. There were a lot of suggestions that it would be a good year to die. And that, of course, is way overblown and probably premature.
Benz: Why is that? I mean, what would be the negative ramifications of dying this year, apart from dying?
Abendroth: Well, as we will discuss, the estate tax may come back. So you may have this individual who blissfully passes away thinking his estate is passing tax free and, lo and behold, nine months later he looks down or looks up, depending on his or her location, and finds that the estate is paying estate tax. That still might happen.
Benz: Clawbacks, is that what you're talking about? That the current estate tax repeal would be undone, and they'd come back and take state taxes that should've been assessed but were not?
Abendroth: Exactly. That is one of a lot of things we simply don't know now. We don't know if the estate tax will, in fact, be back in 2010. We don't really know what a lot of the rules are right now for big lifetime transfers for property.
We don't know exactly--assuming it does come back, and we're pretty certain it will--whether it will come back with the old rules that applied in 2009 or the rules they have set for 2011 or something else entirely.
Benz: So, don't die. That's good advice. And then in terms of my estate plan, are there are any changes, or should I be doing anything, given the state of flux, or should I just leave it be?
Abendroth: Well, our advice has been for most people, their estate plan, if it was well done in the first place, will function just fine in this period of uncertainty. Now unfortunately that's not going to be the case for everybody. And of course most individuals don't know which category they're in. So we are suggesting that it's the safe course to come in an review your estate plan.
A lot of people are making the decision not to do that because they think the risk of dying this year is so small. OK. That's fine. We can understand that. Now certainly, though, if it's an elderly person or someone who is in very bad health, I think the wise course is to come in and have your estate plan reviewed.
Benz: Of course, there might also be life changes that would prompt you to see an estate planning attorney that have nothing to do with estate plan taxes or anything like that. You might have a new child or something like that, and you'd want to figure out the guardianship situation.
Abendroth: Well, certainly, if you don't have an updated estate plan, you should've been in already.
Benz: If you had a big life change.
Abendroth: ... And the current state of uncertainty doesn't change that. Someone who has gone five or 10 years should come in and have it looked at regardless of what's going on right now.
A couple other categories of people who are probably more at risk for needing their plan updated. One is second marriages. First marriages, usually the spouse is a beneficiary of whatever trust is created. Second marriages, you're more likely to have things go one direction or the other, and given the state of the law right now, if those allocations are being made based on tax decisions, it may be distorted.
Second, someone who wants to push property down to grandchildren or trusts for lower generations, and they've done everything to try to do that. If they die in 2010 without estate tax, that's where everything could go, which may not be what they want.
And then finally people who have charitable oriented formulas. Very common to have an estate plan that says, "I leave everything that I can leave tax-free to my children. I leave everything else to charity. Sort of the Warren Buffet plan, supposedly. Right now, if there's no estate tax, everything would go to the children. Again, probably not what they want.
Benz: How about for someone who is the loved one of a person who passes away this year? Are there any things they should keep in mind as they go about attempting to settle the estate?
Abendroth: Well, there's been a lot of talk, Christine, about delaying doing anything in an estate because of the uncertainty, just putting a freeze on everything. The point of fact is that estate administrations take time, anyway, and a lot of what you do isn't tax-driven, so that shouldn't be a motivation. You should keep doing what you need to do after someone passes away.
A lot of the tax decisions that have to be made aren't made anyway until at least nine months after the date of death, and in some cases, 15 months if you take an extension for filing the estate tax return.
So I wouldn't say delay is the proper approach, rather it is proceed as if the rules still existed and assume that you might have to pay a tax, and hopefully nine months from now we'll know a little more about what's going on and the matter will have been clarified.
Now if we actually get there and it's not, then you may have some delays that are going to occur, further delays.
Benz: Further delays in what might already be a delayed process. Well, Tom, thanks so much. That's helpful information.
Abendroth: My pleasure.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.