Estate Planning Law Update
Posted on Jun 30, 2011
These are interesting times for individuals trying to plan their estates. State and federal law continues to be in flux. We would like to highlight some of the most significant changes. As is typically the case (but more true now in uncertain legal times), if you have an existing plan, you should review it periodically to be sure that it is up to date and continues to carry out your wishes effectively.
1. Federal Estate Tax Uncertainty. As you may be aware, the Federal estate tax has been repealed for 2010. For this year only the estate tax has been replaced with a modified carryover basis regime that limits the step-up in the basis of assets that previously would have been applied at death. The estate tax is scheduled to be resurrected in 2011 with a unified credit exemption of $1 million and a top estate tax rate of 55% (as opposed to the current 45% top rate). Congressional leaders had signaled that they would not allow the estate tax repeal to go into effect in 2010, but they were not able to reach an agreement. Likewise, some members of Congress have floated the idea of reinstating the estate tax this year and applying it retroactively. Given the inability of the U.S. Congress to resolve the estate tax issue for the past ten years, it seems risky to rely upon Congress reaching an agreement on this or any other form of estate tax legislation this year.
In light of the continuing uncertainty regarding the federal estate tax and the increasing likelihood of a $1 million exemption returning in 2011, we recommend that you have your estate plan reviewed at least annually by an estate planning professional until the estate tax laws cease to be in flux. Although Congress has recognized the planning difficulties caused by its indecision on this topic, it has simply not been proactive in solving the problem.
2. Vermont Estate Tax. Prior to this year, Vermont’s estate tax did not apply to estates that were not subject to Federal estate tax. Now, for decedents dying after December 31, 2008 and prior to January 1, 2011, estates with a value of greater than $2 million will be subject to Vermont estate tax, which means that for decedents dying in 2009 with assets of greater than $2 million but less than $3.5 million, a Vermont estate tax will be due (and a Vermont estate tax return must be filed) even if no Federal estate tax is imposed. Beginning January 1, 2011, the state exemption will be raised to $2.75 million. With respect to many of the estate plans created for married couples based on federal or Vermont law, this change in the law could result in a Vermont estate tax being due upon the death of the first spouse. We strongly recommend that you have us or another Vermont estate planning attorney review your current estate plan to make sure that there are no unintended tax consequences resulting from your current documents, and to discuss planning options. An explicit provision in a revocable trust that allows the trustee to make a Vermont QTIP election for that part of a decedent’s gross taxable estate that exceeds $2 million might be a useful new feature in these times of uncertainty.
3. Spouse’s Elective Share. Previously, a spouse who was unhappy with his or her share of the assets left for him or her at death could elect to waive the provisions of the decedent’s Will and take one-third of the decedent spouse’s real estate and tangible personal property. Under recently passed legislation, the surviving spouse may now elect to take one-half of the balance of the entire estate after the payment of claims and expenses. Although an attempt was made to allow the spouses to make an effective waiver of this right (which takes effect at death), the legislature decided not to allow a post-nuptial agreement to waive a spouse’s elective share. This expanded post-mortem election gives the surviving spouse much greater potential to disrupt the couple’s written estate plan, particularly in second marriage situations where there are children of previous marriages who are to receive specific portions of your estate(s). You should also take note that the homestead that a surviving spouse can claim in the decedent’s home if the surviving spouse lived in it has been raised from $75,000 to $125,000.
4. Durable General Power of AttorneyA Durable General Power of Attorney naming an agent to act on your behalf should be a standard feature of most estate plans.. Such powers of attorney typically became effective immediately upon execution by you (to avoid the need for a doctor’s determination of incapacity to be effective). Although many form powers of attorney typically allow the agent to make gifts on the principal’s behalf, typically it will not allow the agent to effectively change an estate plan by creating a new trust and transferring assets to it. However, under recently-passed law, an agent under a general power of attorney prepared is now deemed to have the authority to create new trusts (with such terms as the agent may determine) and thereby re-write your estate plan, even if the agreement does not expressly allow such action. We believe that many, if not most, principals would be reluctant to grant such power to their agents under a power of attorney. Our concerns were raised during the legislative process, and although the Vermont Bar Association members who were involved in drafting the legislation objected to this change, the legislature decided to include it in the bill that ultimately passed. If you have concerns about the effect of the new law on your power of attorney, it can be revised to expressly prohibit the creation of new trusts or to limit the scope of the agent’s authority to create new trusts.
5. Transfer of a Vehicle on Death. Formerly, many attorneys were hesitant to recommend jointly titling a vehicle with its intended recipient at death because of the liability risk incurred by the co-owner. The Vermont Statutes have been amended to allow the owner of a vehicle to designate the beneficiary of title upon the death of the current owner through a “transfer on death (TOD) designation.” Transferring a vehicle to an heir through the probate administration process could be very expensive and time-consuming, and therefore you may want to consider indicating on the title who will be the successor owner.
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