Wealth Law Blog : Oregon Asset Protection Lawyers & Attorneys : Samuels Yoelin Kantor Seymour & Spinrad Law Firm : OR Estate Planning, Fiduciary Litigation

From time to time we publish summaries of interesting trust and estate cases. Today’s post examines a recent Oregon Appeals Court decision in the rapidly expanding field of elder law. The case involves an elderly woman with impaired mental capacity and asks whether she may be a considered a third-party beneficiary (under contract law) of a residency agreement signed on her behalf. The case also touches on the issue of arbitration clauses in residency agreements at senior housing facilities. Arbitration clauses like the one at issue in this case have been the subject of a number of recent 9^th circuit cases.

Drury v. Assisted Living Concepts, 245 Or App 217 (2011)

Background: Dorothy Drury was suffering from dementia and her mental capacity was severely impaired at the time her son, Eddie, admitted her to the defendant’s assisted living facility. Eddie signed the facility’s admission paperwork and residency agreement. At that time he was not yet Dorothy’s guardian or conservator and did not then have a power of attorney for her.

The residency agreement included a clause requiring arbitration for all claims or disputes relating to the agreement or the services provided “to You by Us.” After about a year in the facility, Dorothy died as a result of injuries sustained in a fall. Her estate’s personal representative sued the facility for wrongful death resulting from negligent conduct. The defendants (unsuccessfully) moved to compel arbitration, arguing that the estate was bound to the arbitration clause in the residency agreement as a third-party beneficiary of the contract.

On appeal, the court held that Dorothy’s estate was not bound to the agreement and its arbitration clause. Under general contract law principles, a third-party beneficiary is presumed to assent to a contract when it accepts benefits or otherwise seeks to enforce rights under that contract. Dorothy was a “third-party donee beneficiary” of the residency agreement signed by her son. The critical issue for the court was Dorothy’s mental capacity - or lack thereof. Even though Dorothy accepted the contract’s benefits (the facility’s services and apartment), her lack of requisite mental capacity meant that her acceptance of benefits did not ratify the contract.

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We are pleased to announce a new seminar series that will keep our clients and colleagues informed on recent developments and industry best practices. The seminars take place in our beautiful, state-of-the-art conference room on the 38th floor of the US Bancorp Tower. Seminars are complimentary and include a boxed lunch.

To register, contact events@samuelslaw.com or call us at 503-226-2966. Seating is limited, so be sure to contact us soon!

Federal and Oregon Estate Tax Changes: Meet the New Boss, Same as the Old Boss
THURSDAY SEPTEMBER 1, 2011, 12 NOON - 1:30 P.M.

Presented by Edward "Ted" L. Simpson and Glen Goland

The estate tax landscape has changed dramatically for Oregon residents over the last nine months. In December 2010, the U.S. Congress unified the gift and estate tax exemptions at $5 million and introduced portability of the exemption between spouses. This spring the Oregon legislature changed our state’s estate tax rates and the manner in which the tax is calculated. Our seminar will discuss these and other changes to the estate tax system. It will demonstrate the effect these new rules have had on our clients and discuss the planning issues raised by these changes.

To register for any of these seminars, contact events@samuelslaw.com or call us at 503-226-2966. Seating is limited, so be sure to contact us soon! 

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The recent passing of 27 year-old entertainer Amy Winehouse is tragic on many levels. Her family and friends will never be able to replace their lost daughter and friend; her fans will forever miss Amy’s undeniable talent and unique voice. Her well documented substance abuse problems, shared with the world through 24-hour cable news and the internet, were a tragedy in themselves.
 

Ms. Winehouse is the most recent in a long line of musicians who have left us at 27, a line that includes Jim Morrison, Kurt Cobain, Brian Jones, Janis Joplin, and Jimi Hendrix, among others. Unlike many of the musicians on this list, however, it appears Amy Winehouse had sound legal counsel somewhere along the way.

First, a little background: Amy Winehouse married Blake Fielder-Civil in 2007. The couple divorced in 2009. During the time that they were married, Winehouse’s second LP, “Back to Black” took her from anonymity to superstardom. She won 5 Grammy Awards and the album shot to #1 on charts around the world. Mr. Fielder-Civil’s life was traveling in the opposite direction – six months into their marriage he was sentenced to 27 months in prison for assaulting a man and then offering the man $400,000 to not show up in court. He was recently arrested again and is currently serving a 32 month sentence for robbery.

Under British law, Ms. Winehouse’s ex-spouse would have been in line to inherit the bulk of her estate, which is estimate to be worth over $15 million. Fortunately, in this case, reports indicate that she executed a new will after the divorce. This new will, according to published reports, leaves her estate to her mother and family while excluding her ex-husband.

The estate planning lesson in this case is clear: Individuals should update their estate plans when they go through life-altering events like marriage, divorce, retirement, having children, or becoming international rock stars.

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My law partner Merritt Yoelin recently pointed out an article in the Wall Street Journal entitled The 25 Documents You Need Before You Die. In discussing the article, Merritt explained “many of our clients have asked us for this type of information so that they may organize their affairs. This is the best I have seen in my many years of practice.”

In the article, Saabira Chaudhuri discusses a number of documents that each of us should compile. The article provides an excellent framework to think about the estate planning process. The articles main points can be summarized as follows:

     1.         Know what your assets are and how you own them. We often discuss with our clients the importance of understanding what your assets are, what they’re worth, and how they are titled. For example, for planning purposes, the home you own with your spouse, your interests in a retirement plan or IRA, or investments you own with an unrelated business partner, will all be treated in very different ways at your death. It’s essential to understand these intricacies and possibly take appropriate actions in the estate planning process. For example, many clients with whom I meet are surprised to learn that their will or trust will generally not control what happens to their retirement accounts or IRA when they die. Rather, it’s the beneficiary designations that are typically signed when a person first opens such accounts.

     2.         Plan carefully, and prepare legal documents that reflect that plan. While that might sound like a platitude, many individuals simply have not prepared an estate plan that meets the specific needs of their family. Rather, they see the process as just “completing the right forms.” However, every family has a unique set of assets and family dynamics. It’s entirely common for children in a family to have very different personalities, needs, and challenges. By candidly discussing these issues with an experienced estate planning attorney, these issues can be addressed, while at the same time navigating the ever-changing tax issues that impact the estate planning process.

     3.         Communicate! Another key point set forth in Ms. Chaudhuri’s article is the importance of communicating information about your planning to your family, your executor, and/or your trustee. If these key people don’t have the appropriate information relating to your assets and the planning steps that you’ve taken, their job in taking care of your estate will be much more difficult. I made a similar point in my WLB article last year entitled “Estate Planning and ‘Virtual Assets’”. In that article, I discussed the “VAIL” or “Virtual Asset Instruction Letter,” which is similar a tool to list your electronic or digital assets (which we call “virtual assets). The VAIL is an instruction letter about these kinds of assets that is directed to your executor or trustee to ease the burden of administering these assets after your death.

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There are several ways that attorneys can utilize estate-planning documents to provide for pets upon the death of their owner. One popular method is leaving a sum of money to a caretaker in the pet owner's will. There are two potential issues to consider with this method of planning: The pet owner has no way of ensuring that the assets will be used to cover pet-related expenses and there may be negative tax consequences to leaving the caretaker a sum of money outright. These same problems can exist when an owner makes a monetary bequest to a pet caregiver towards the end of his or her life.

These factors were overblown in many of the publications I read when preparing my own estate plan. Under today's $5 million federal estate tax exemption, there are virtually zero federal estate or gift tax implications when a person leaves $5-10,000 to a trusted caretaker. There may be state tax implications in some circumstances and your attorney should discuss potential state taxes with you when considering this option. As for guaranteeing the money is spent properly? Many of my clients have told me that they would not be naming the person to look after the pets if they did not trust them. This issue is a non-factor in these cases and in others it is the primary factor - it depends on the relationship the owner has with the potential caretaker(s).

A second way that pet owners can utilize wills to provide for their pets is by making a bequest to animal organizations that will work to place your pet in a home if you leave assets to the organization. The Oregon Humane Society's Friends Forever program is an example of one of these programs. The Portland-based shelter adopted out over 17,000 animal in 2010, including all of the animals that came in under 'Friends Forever'. 

If a pet owner makes no provisions for his or her animal, the pet will become part of the owner’s residuary estate and will usually pass to a new owner under the residuary clause of the will. In Oregon the estate may reimburse the caretaker who looks after the animal immediately after the owner’s death.

Attorneys regularly address these (and other) pet planning issues through the use of the pet trust. Pet trusts determine custody of the animal, provide instruction for the caretaker and pay for the animals’ expenses. Pet trusts can be stand-alone documents or they can be incorporated into the pet owner’s will or trust. Pet trusts should be considered very carefully, as they can be surprisingly expensive to administer. If your animal is one that will likely outlive a caretaker or two (a parrot or turtle for example) or is particularly expensive to care for (a horse or a pet with high medical expenses maybe) then a pet trust might be the perfect document for you. If it is just your cat or your dog, carefully consider your pets needs vs. the amount of administration required to maintain the pet trust.

The first question an owner must answer when preparing a pet trust is, “who will look after the animal on a day to day basis?” The caretaker(s) should be familiar with the pets and should receive a copy of the pet instruction letter discussed in my previous blog post. Pet owners should consider the tax implications involved when leaving assets to a caretaker. The owner may consider providing additional compensation to the caretaker to make up for any tax liability imposed due to the financial bequest under the pet trust.

The next individual an owner may name in a pet trust is the trustee. The trustee is in charge of tracking trust expenses, bank accounts and, in some states, preparing trust tax returns and distributing an annual accounting. A pet owner should consider these activities (and their associated cost) when selecting a trustee for their pet trust.

The last person an owner may name in the pet trust is the trust protector. This independent person has no role in the day-to-day operation of the trust. He or she is in charge of monitoring the overall performance of the trust to ensure the pet is being cared for properly. This trust protector checks in on the actions of the caretaker and the trustee. The trust protector holds the other parties accountable when there are questions about the administration of the trust. ORS 130.185 allows for an interested party to petition the court on the pet's behalf, so if even if the document does not name a trust protector, a friend of family member could petition the court to remove a trustee if the animal was not being cared for as outlined in the trust.

A word of warning: Not all pet trusts are created equal. There is a lot more to a well written pet trust than merely listing the people to serve in the roles outlined above. These documents should also allocate funds, account for expenses of trust administration and occasionally outline investment strategies, among other things. The trust should clearly outline which expenses may be paid from the trust property and tell the reader exactly how these fees are to be paid. A pet trust should also provide for back-ups in the event that the named individuals cannot serve.

The most famous pet trust of them all is the one that belonged to the late Leona Helmsley. This trust provided $12 million to care for her dog and the story garnered media attention around the world. The trust was established to pay for her dog Trouble’s expenses with any remaining assets passing to a charitable foundation at Trouble’s death. Helmsley’s executors petitioned the New York Court to reduce the amount of assets going to the trust, in an effort to minimize the taxes due on Helmsley’s estate. They were successful in their petition and the judge ordered the pet trust funded with “only” $2 million. The remaining assets flowed to the charitable foundation in a $10 million transfer that qualified for the charitable deduction.

The New York judge in the Helmsley case relied on the language of New York’s pet trust statute. In New York, and in states that have adopted the Uniform Trust Code’s pet trust language, courts may “determine the value of the trust property that exceeds the amount required for the intended use”. The courts may then reduce the funding of the pet trust accordingly and direct the excess assets into a resulting trust for the benefit of the settlor’s successor in interest.

The pet trust statutes in Oregon and Washington do not contain language allowing courts to reduce the amount of assets directed to these trusts. Had Leona Helmsley relocated to the Pacific Northwest, Trouble may still be living large off of $12 million. ORS 130.185 specifically states, “Property of a trust authorized by this section may be applied only to its intended use.” Similarly, RCW 11.118.030 provides, “no portion of the principal or income of the trust may be converted to the use of the trustee or to any use other than for the trust's purpose or for the benefit of the designated animal or animals.”

While most of us will never have to worry about leaving a pet $12 million, there is an important lesson to be learned from Leona Helmsley’s pet trust. The $10 million implications of the seemingly subtle differences in the statutory language highlights the importance of putting together your pet’s long-term plan with an advisor that understands the delicate issues involved.
 

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The first step in planning for pets is to address the question “who will take care of the animals in an emergency?” If there is a short-term disability or illness, do you have someone who will go to your home and feed the cat or walk the dog? Does that person have a key? Do they know where the dog food is? Are the animals familiar with this person?

The short-term caretaker may be identified by an informal agreement like the one we have with one of our family friends. He has a key to our place, knows the animals well and we have shown him where their food is kept, where the vet records are, etc. He has our family contact information and he is an emergency contact on file with our employers and the day care facilities we take our dog to.

Some of our clients have taken a more formalized approach by authorizing an agent to care for their animals in periods of disability and/or hospitalization. This is accomplished by adding language to the power of attorney that specifically grants an agent the power to care for the pet(s). The decision on whether to make a formal or an informal agreement with the caretaker depends on a number of owner-specific issues: the proximity of friends and family, the amount of time and/or work the pets require and the expenses involved in caring for the animals, to name a few.

Regardless of whether an owner takes a formal or an informal approach to short-term planning, it is most important that they have a plan and they write it down. ORS § 130.185 instructs Oregon courts by providing for, “the liberal construction of oral or written instruments as enforceable pet trusts and not unenforceable honorary trusts.” Make a plan. Write it down.

There is a second document that pet owners should be creating for both their short-term and long-term planning: instructions for the day-to-day care of the animals. This document should include all of the necessary contact information for vets, trainers, kennels, etc. It should note the exercise routines of the pets, their feeding habits and any other relevant information. It should tell the caretaker the location of the animals’ health records, vaccination history and licensing information. The U.S. Census Bureau estimates that 22 percent of the nation’s dogs and 25 percent of our cats live in single person households. Creating a detailed set of instructions is particularly important for these pet owners, as it is less likely there will be another individual who is familiar with the pets’ day-to-day routines. A detailed instruction letter is also crucial if your pet has special dietary needs, medical concerns or training issues.

A well drafted estate plan provides the family with adequate instructions on how matters are to be handled during a time of crisis. If your family includes household pets, you should think about what would happen to them in a short term emergency. Do you have a friend or family member that would look after your pets? If so, talk to that person about the arrangement and write it down. In my next blog post I will discuss planning for the long-term care of our furry friends.
 

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For those of you in the Chicago area on July 14-15, Samuels Yoelin Kantor attorney Victoria Blachly will be speaking at the ALI-ABA CLE Representing Estate and Trust Beneficiaries and Fiduciaries.

Her topic is incorporating virtual assets and online information into an estate plan:

1. What are virtual assets?
2. Integrating virtual assets into your estate plan.
3. Creating a VAIL (Virtual Asset Instruction Letter).
4. Consider who should receive your virtual assets.
5. Use caution when dealing with commercial services to hold your virtual assets.

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There are three ways that ownership of an asset is transferred at death – by law (a joint tenancy arrangement for example), by bequest (through a will or trust) and by contract (through the use of a beneficiary designation). The Appeals Court of Oregon’s recent decision in the case In re Marriage of Keller (232 Or.App. 341) reminds us that an individual that is planning on transferring assets through the use of beneficiary designations (primarily insurance proceeds and IRA/pension benefits) must make sure that the beneficiaries stated on the plan or the policy match up with his or her planning objectives.

In Keller, the court was presented with a complicated (but not uncommon) family situation. A man and his wife agreed to a divorce decree in which the husband retained ownership of a number of assets, including several insurance policies. The divorce agreement contained a provision which read, in part, “each party releases and relinquishes any and all claims or rights which he or she may now have, may have had, or may have in the future against the other as a result of the marriage of the parties, including but not limited to spousal support.”

After the husband’s death, the executor of his estate determined that the decedent’s ex-spouse was still listed as a beneficiary on one insurance policy. The executor asked the ex-spouse to disclaim the insurance proceeds, the ex-spouse refused, and the executor sued the ex-spouse for violating the clause spelled out above. Three-and-a-half years later, the parties have received two judgments and are still fighting. The trial court ruled in favor of the ex-spouse and the Appeals Court of Oregon recently remanded the trial court decision and sent the case back to the lower court for a more detailed analysis of the divorce agreement entered into by the parties.

The moral of the story? When developing (and revising) an estate plan, it is important to pay particular attention to the individuals that you have named as beneficiaries on insurance policies, IRA accounts and pension plans. Incorrectly naming the beneficiaries on these accounts can leave to prolonged court battles and unexpected (and expensive) results.

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As an estate planning attorney, I often help people plan for the distribution of their assets when they are gone. I talk with my clients about what will happen to the house, the stamp collection, the bank accounts, etc. One question that usually provokes a strong response is, “What would you like to have happen to your pets?” Unfortunately, this is a question that goes unanswered far too often. In the United States, close to 500,000 pets end up in shelters every year when their owners die or become disabled. In these shelters, five out of ten dogs and seven out of ten cats are euthanized because there is no one to adopt them. If we plan ahead for these things, we can help our pets live the way that we want them to when we are gone. We can also make sure they never become statistics.

The American Society for the Prevention of Cruelty to Animals estimates that the average annual cost of basic food, supplies, medical care and training for a dog or cat is $700-875. The cost of our dog’s day care expenses, food, training, teeth cleaning and vet check-ups is considerably higher than this projection, while the cost of caring for our cat is significantly lower. The actual costs will depend on the pet. Who will pay this bill when we are gone? Will our pets live a life similar to the one they have now? Will our dog still get his raw diet or will he be fed generic kibble? Will our cat still go to the same vet? Will they be moved away from our current neighborhood and city? Will they go to a shelter? These are some of the questions we should be thinking about.

This article will be divided into three separate blog posts. This week I’ll talk about Oregon’s rich history on the forefront of animal rights and mention some of Oregon’s judicial and legislative decisions that affect the planning we do for our pets. In my next post I’ll talk about short-term planning for periods of emergency. In my final entry I will discuss the questions that pet owners should think about when preparing their estate plans.

Oregon’s courts recognized something over 100 years ago that is evident if you walk down any street in any town in Oregon today: We have a special attachment to our pets. They are friends, companions and family. In the 1914 case McCallister v. Sappingfield, an Oregon court ruled that when an animal was hurt or killed, its owner should receive more than just the market value of the animal. This “Special Value” law recognized that our dog is worth more to my family than the $80 adoption fee we paid at the shelter.

More recently, Oregon’s legislature made animal cruelty a felony in 1995 and ORS § 130.185 became law in 2005 – allowing Oregon residents to create legally binding pet trusts. Forty-three states now categorize animal cruelty as a felony and forty-four of them recognize pet trusts. Additionally, ORS § 114.215(3) provides for a unique procedure to care for an animal immediately following the death of its owner – even if the owner has left behind no will or other planning documents. This statute allows friends and/or family members to take immediate possession of the animal and be reimbursed for any reasonable expenses incurred in caring for the pet during the probate of the owner’s estate.

The Oregon State Bar is one of the few in the country that has an entire section devoted to animal law. Oregon’s Lewis & Clark Law School was the first college in the country to publish an animal law review and its students were the first to organize a chapter of the Animal Legal Defense Fund. Oregon's judges, legislative bodies, attorneys and law students recognize that our animals have certain rights and values that must be protected under the law. In part two of this article, I'll talk about how these protections affect the planning process. 

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In my experience, one of the most common areas of confusion in wealth and estate planning is beneficiary designations and their importance in many key areas.

Many important assets in an individual’s portfolio often pass at that person’s death by beneficiary designation and not by that person’s will or trust. Common examples of these types of assets include life insurance, retirement plans, individual retirement accounts (IRAs), and annuities. For many, these assets represent a significant portion of their overall assets, yet the beneficiary designations for these assets are sometimes not carefully considered.

Above all, it is very important to recognize that your will or revocable living trust does not control or “override” the beneficiary designations. For example, a parent’s will may direct assets to a trust for minor children if both parents are deceased. If the parent’s life insurance designation names the children directly, then the life insurance proceeds will “miss” the trust entirely, thus potentially requiring a conservatorship for the proceeds until the children reach age 18. While the children may legally be adults at age 18, they may not have sufficient maturity and experience to properly manage large sums of money (think expensive red sports cars here). The better approach would have been for the life insurance beneficiary designation to name the children’s trust as the beneficiary under the life insurance policy upon the death of the surviving parent. 

It’s also very important that you understand the tax consequences of your beneficiary designations. For example, if you designate your spouse as your beneficiary under your IRA, your spouse will be able to take advantage of a tax-free rollover of the IRA account into his or her own IRA. On the other hand, if a beneficiary other than a spouse is designated, then the beneficiary will have to take mandatory distributions from the IRA, which in turn will be subject to income taxes. In addition, while the estate tax is in currently in flux, assets passing by beneficiary designation are generally subject to the estate tax in the same manner as any other asset.

The best approach is to carefully consider and integrate beneficiary designations as part of a well-designated estate plan.

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On January 1, 2010, the federal estate tax was repealed for one year (2010) unless and until Congress decides to change the law. We don’t know how long the repeal will last, but the fact that the federal estate tax has been repealed for some part of 2010 complicates estate planning for everyone.

Several members of Congress have indicated that these complications will be resolved quickly, but I remain skeptical. Currently, there are four possible outcomes:

• First, Congress quickly enacts an extension of the 2009 law ($3.5 million exemption and full basis step-up) retroactively. How many times have we seen Congress act quickly when the Democrats and the Republicans are so polarized?
   
• Second, Congress passes a permanent extension of the 2009 law, but makes it prospective only. This is the bill that was passed in the House, but 60 Senators have to agree. If it is prospective only, gap legislation will also have to be passed to cover the period when repeal was in effect.     

• Third, Congress enacts a more permanent reform with a higher exemption amount, and it will likely be prospective only. Some senators would like to raise the exemption to $5 million and add some other changes to permanent legislation. Other senators would prefer the next option of the return to the $1 million exemption. At this point neither side has the 60 votes necessary. The longer Congress takes to pass a reform bill, the more likely it will not be retroactive.
  
• Fourth, Congress does nothing and the $1 million exemption returns in 2011.  Unfortunately, political and fund raising motives may result in this outcome.

In the meantime, taking advantage of the estate tax and generation skipping tax repeal will be an important planning opportunity for high net-worth individuals and their advisers. Accountants, attorneys and financial advisors will need to learn the details of the new modified carry-over basis rules since they are applicable to all estates. 

This truly is a mess.  Hopefully, Congress will act responsibly to clean it up.

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Since the passage of the Economic Growth and Tax Relief and Reconciliation Act in 2001, clients and practitioners have been waiting for years for Congress to determine what happens to estate taxes after 2009. The Republicans hoped to completely repeal the estate tax. The Democrats wanted to keep the estate tax but raise the amount that is exempt from estate tax. 

On December 3, 2009, the U.S. House of Representatives passed the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 a/k/a HR 4154. (For a copy of HR 4154 click here),  which is their vision for federal estate tax reform. What does HR 4154 do?

• HR 4154 makes the federal estate tax exemption of $3.5 million permanent, however, there are no inflation adjustments;
• The zero estate tax for 2010 is repealed;
• The basis step-up provisions which have traditionally been part of the federal estate tax law have been reinstated for 2010; and 
• The estate tax rate is made permanent at 45%.

The House vote to approve the bill was 225 to 200. No Republicans supported the bill. Speculation continues that any estate tax reform legislation that occurs within the next few weeks will ultimately apply to 2010 only, and the more permanent issues will be decided next year. The stage now turns to the Senate, and it is expected to pass its own version of estate tax reform.
 

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One of the most surprising revelations that many of my clients experience is the fact that estate/inheritance taxes will be due upon their death, unless they do some planning.  These clients have been convinced that estate/inheritance taxes only affect the rich, and since they do not perceive themselves as rich, they have nothing to worry about.

What these clients don't realize, until our initial meeting, is what all is included in their taxable estate.  The asset most often left out is proceeds from life insurance.  If you have a million dollar life insurance policy, and you also have other assets, you will pay inheritance tax in Oregon, which has only a $1 million exclusion.

The second asset most often forgotten is retirement plans.  These amounts are not only included in your taxable estate, and therefore subject to the estate tax, but they are also, without proper planning, potentially subject to income taxes.

The third asset that people seem to forget when calculating their taxable estate is equity in their real property.  This one may seem more surprising than the others, but it happens quite frequently.

Fourth, there are assets that client's have received from their parent's estate planning, such as family limited partnership interests, that they tend to forget about.

For those who don't relish the idea of paying more taxes than is required (and I have yet to meet someone who does),  I recommend having a long discussion with your estate planning attorney about what is included, and what the estate tax exemptions are currently (see earlier posts about changes in the federal estate tax exemption).

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In the August 7, 2009, BNA Daily Tax Report, it was noted that Rep. Brady has proposed a permanent repeal of the estate tax.  Do you remember that old Saturday morning cartoon, I'm Just a Bill?  Well, this bill is going to continue to sit on Capitol Hill and will never become law.  You heard it here first.

So, what is to become of the repeal of the estate tax?  Most of those in the know seem to say that we are going to stay with the current $3.5 million exemption.  They are probably right.  However, I think it is dangerous to count on that happening.  Let me spell out for you a less probable, but possible scenario.

 Under current law, in 2010, the estate tax essentially goes away.  Then, in 2011, it comes back with a vengeance, at a $1 million exemption (thank you Senator Bird).  When this process was set up eight years ago, it was thought that there was no way a tax increase would be allowed, so the repeal would go on, regardless of the Bird Rule.  However, now we are in an economic crisis, and the government needs money. 

Many believe that the congressional leadership don't want to see 2010 with the unlimited exemption, so we can expect finality this year.  It is possible, however, that the they will just punt this year.  With health care taking up the entire agenda lately, the congressional leadership could just extend the $3.5 million exemption for one year while they consider the matter.  They would likely get broad suppport for this extension.  Then, next year, they could decide that Bush's plan was best after all, and just let the Bird Rule apply.  We would be back at a $1 million exemption without a vote for a tax increase.

You may be thinking the congressional leadership wouldn't risk this because it affects too many of the voters, but keep two things in mind.  First, because of the recession, less people would be affected as less people will have taxable estates.  And second, the government needs money to finance the change America voted for.

Now, I agree this is not the most probable scenario.  But, it is at least possible, and because it is at least possible, we should consider it in our estate tax planning. 

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