Review Your Estate Planning Documents

In the last estate planning post, I noted that Congress had failed to extend the estate tax, and this was creating all sorts of uncertainty for planners in 2010. The uncertainty doesn't end with what might be done in the future. The repeal of the estate tax could throw a monkey wrench into existing estate plans.

This is because many plans were writtent to take advantage of the spousal exemption. Under the Internal Revenue Code, a certain amount of the estate was exempt if passed to a surviving spouse. As a result, many estate plans provided for a division of the estate, with a portion equal to the spouse's exemption going to the spouse, the rest going into a trust or somewhere else. With the repeal of the estate tax, these plans could be read such that the surviving spouse gets nothing, i.e., since there is no estate tax, there is no spousal exemption. Thus, everything goes into the trust or elsewhere, where the spouse can't get at it. This is clearly not what most people would want for a surviving spouse, but it might be exactly what happens.

Review your estate planning documents.