New York Estate Planning Lawyer Blog

Yesterday was Groundhog Day--that storied time when a prognosticating animal is supposed to tell us how many more weeks of winter we have left this season. According to most reports, yesterday the nation's most famous groundhog, Punxsutawney Phil, saw his shadow and scurried back out of the cold. Apparently this is a sign of many more weeks of winter to come. Punxsutawney Phil was made a national celebrity in the early 1990s after being spotlighted in the popular Bill Murray movie titled "Groundhog Day." The film has gained legendary status among some, as it chronicles the exploits of Murray who wakes up in Punxsutawney every single morning on February second, forced to relive Groundhog Day over and over.

Our New York estate planning lawyers know a few things about repetition. That is because when it comes to planning for one's financial future, many local families seem to make the same mistakes over and over again. Yesterday CBS News published a Groundhog Day special report listing seven money mistakes that retirees consistently make. Many of the items on the list are quite familiar to the New York retirement attorneys at our firm.

For example, the first mistake is putting off estate planning altogether. The story's author noted that "failing to create a financial or estate plan isn't just a matter of missing out on investment opportunities or tax advantages. It can get you in trouble later in retirement when you're no longer at the top of your game mentally." It is always comforting to push off thinking about potential mental challenges in the future, but failure to account for it only leads to heartache for one's family. Nearly 50% of the nation's population over eighty years old suffers from some sort of cognitive impairment. A host of challenges are created if planning is not done before the problems set in.

Another big mistake that is repeated over and over by retirees is paying too much in taxes. It is vital to learn how withdrawals from retirement accounts, volunteer work, and other issues affect one's taxes. Many seniors fail to create a plan of gradual withdrawals from retirement accounts to minimize tax burdens. In addition, many seniors who do regular volunteer work do not use tax deductions for things like mileage and out-of-pocket expenses.

Far too many seniors fail to take full advantage of the planning tools available under the law to put themselves and their family in better financial shape. All local residents should take the time to visit with a professional to ensure that they do not make the same mistakes that so many others continue to make day in and day out.

See Our Related Blog Posts:

Do Not Let Long-term Care Destroy Your Retirement Planning

Ettinger Law Firm Attorney Shares Terminology of Elder Law Estate Planning

An article this week from West Fair Online explained how professionals working with residents on financial issues have seen a significant increase in demand for their services as of late. While there may be a tendency among some to become paralyzed when the economy is so volatile, many others view the instability as a time to act prudently and plan ahead as much as possible. The article reports what our New York estate planners have long known: the need to have an estate plan remains strong regardless of the circumstances.

Experts know that the need for prudent planning is perhaps even more important at times like these, when there tax and policy uncertainties at the local, state, and federal levels. One planner interviewed for the story explained how in turbulent financial times "the area's residents should have a vested interest in knowing what the stakes are for their assets." While those residents at the top income levels are often more aware of how the laws affect them, many middle class families have just as much to gain by using the legal tools available to plan their financial future and save taxes in the long-term.

Most observers have applauded the steady rise in estate planning awareness. However, there are still a few groups which continue to neglect their planning needs. For example, many local small business owners continue to miss out on opportunities to visit with a New York estate planning lawyer to take care of long-term financial goals. Of course, small business owners wear many hats. Rarely do they have time to accomplish everything on their "to do" list each day. Yet, many benefits have been reported by those who have carved out time to visit with financial professionals to protect assets, create a succession plan, and conduct similar tasks.

Also, a growing number of estate disputes faced by families have increased the popularity of estate planning. Many onlookers of these family fights have come to realize that the problem can be avoided if professionals are consulted ahead of time. Estate litigators have noticed a surge in family inheritance infighting caused in part because seniors are living longer but often not while maintaining their mental capacity. Without iron-clad plans in place ahead of time, vulnerable seniors often find themselves taken advantage of by less than scrupulous friends and family members trying to access funds. One litigator remarked, "A lot of wrongdoing takes place while mom is still alive but on her way down hill."

See Our Related Blog Posts:

Adult Children Often Remind Senior Parents of Estate Planning Importance

New York Estate Planning Attorney Shares Common Estate Planning Mistakes

An experienced New York estate planning attorney has likely come to appreciate how asset preparation issues are particularly important for women. Demographics play a role in this reality. Women tend to outlive men, and a wife is more likely than a husband to be left alone after a disability or death. In addition, men frequently take charge of handling family financial affairs while alive and risk leaving their wives in an unfamiliar position if preparation is not conducted ahead of time.

Yet polls continue to reveal that it is only a minority of women who admit prioritizing estate planning or familiarizing themselves with family financial issues. A Forbes article yesterday discussed this disconnect between the importance of financial preparation for wives and their prioritization of it. The story mentioned that women are much more likely to experience a decline in their standard of living following the death of a spouse because of their longer life expectancy, tendency to marry older spouses, and lower lifetime earning average. Interestingly, this also means that wives frequently have the last word about where a couple's assets ultimately end up--either to the family, charity, or tax coffers--particularly when the family had conducted no prior planning.

This makes it essential for women to become equal participants in the estate planning process or to take charge of the process if no preparation has yet been completed. While talking about mortality is rarely easy or light hearted, it is a topic that cannot be avoided in the end. The story's author suggests that it is often helpful to have a series of conversations about the topic instead of trying to cover everything at once. Of course every couple will have their own ways of communicating. However, it may be useful to mention the need to consider the children, refer to someone who recently passed away, or bring up a news article that discussed estate plans.

Our New York estate planning lawyers have worked on many facets of the process that disproportionately affect women. For example, a family home is exempt from Medicaid while both spouses are living. However, if a husband dies, the wife must make special arrangements to keep the home from being used for long-term care costs, such as creating a Medicaid Asset Protection Trust. In addition, Caregiver Agreements are more frequently used by daughters to compensate them for the job of caring or boarding an aging parent or to receive a lump-sum distribution to help provide for that care.

See Our Related Blog Posts:

Now Remains a Good Time for Baby Boomers to Conduct Estate Planning

Estate Planning May Be A Family Decision

On Monday the Metro West Daily News discussed some myths about retirement. Popular culture, water-coolers chats, and other daily interactions often spread misconceptions about what it means to plan for retirement and what it takes to be financially secure in the future. Many area residents put in a lifetime of hard work, and it is important that theirs effort not be compromised through misunderstandings about the retirement process or failure to conduct proper New York retirement planning.

The article noted that one of the biggest misunderstandings relates to the overall cost of retirement. It is often a mistake to believe that reaching a certain net worth or portfolio value will mean that one can retire in luxury. The expanding length of retirement is one of the main reasons that this is no longer true. Sixty years ago, most individuals retired at sixty-five years old and usually lived until they were seventy. With life expectancy now at eighty years and beyond, the total money needed to retire at a certain lifestyle has increased.

There is a significant difference between funding a five year retirement and one that may be twenty years or more. Most will not have a "magic number" that will guarantee decades of luxurious retirement. Instead, residents need to take what they have accumulated and conduct proper planning to maximize their retirement value while preparing for contingencies.

Another of the myths shared was that individuals need not worry about planning for nursing home costs, because Medicaid will cover it. However, as anyone who has had to go through the process can attest, it is not that easy. Various requirements of need must be shown before the program will provide aid. In particular, if nursing home care is needed, there is a five year "look back" period. That means that Medicaid investigators will examine the asset transfers that have been made in the last five years to determine if property was given to others that could have been used to fund long-term care. Area residents can avoid this issue by having a proper New York Medicaid strategy in place to protect assets while ensuring access to the care they need.

The importance of preparation is why the article mentioned that perhaps the most harmful myth about retirement is that someone does not need any help in planning for it. Retirement planning encompasses a variety of components, each of which may require complex understandings of tax, financial, and legal issues. Without assistance strategic mistakes are often made.

Continue reading "Dispelling Common Retirement Myths" »

When many area residents are told to consider visiting a New York estate planning lawyer their mind immediately envisions someone who will craft a will or a create a trust. However, estate planning is much more than document creation. Instead, it is best viewed as a process by which an individual works to eliminate future uncertainties and reduce potential financial complications for their loved ones. Wills and trusts may be a component of that process, but they are by no means its sum total.

This multifaceted approach to estate planning was nicely summarized this weekend in an article at Today Online. Most local community members spend a large part of their lives on asset accumulation--the process of building up their estate. Yet the important considerations of asset preservation and distribution are often given only minimal thought. That is where the New York estate planning attorney comes in.

Beyond mere drafting of wills and trusts, these professionals are capable of helping you determine what strategies will ensure that extended medical costs, taxes, and other factors swallow as little of your accumulated wealth as possible. This may involve the creation of a Medicaid Asset Protection Trust or perhaps advice on the acquisition of long-term care insurance. In any event, the most important part of the process is figuring out what needs to be done to best save your wealth--the creation of documents to actually carry out those wishes only occurs later.

In addition to preserving your estate, the planning process also involves a discussion of its ultimate distribution. This includes both ensuring that your estate is divided as you wish but also that the division occurs in as quick and straightforward a manner as possible. Many clients remain surprised by the type of advice and information that they receive about how their estate can be distributed. For example, many conditions can be placed on when an inheritance is dispersed or how it is spent for certain family members. The options are essentially unlimited. Understanding those choices and matching them with your wishes is a vital part of the process.

Continue reading "New York Estate Planning is Much More than Wills & Trusts" »

by Michael Ettinger, Esq.

Let's face it, life insurance is a mystery to most people. Few know whether they have the best insurance for the money.

Here are some changes that may require you to review what you have.

1. Interest rates have fallen, lowering the internal rate of return on your policy. This may cause it to "blow up" at a later date, where only the payment of large premiums will save it.

2. The coverage may be inadequate, or it may be excessive, depending on your changed circumstances. Perhaps the money might now be better used elsewhere, say for long-term care insurance instead. Or have both - borrow the cash value to pay for long-term care insurance and keep the death benefit too.

3. Due to new life expectancy tables, you may be able to get more insurance for less money.

4. The financial stability of your insurance company should be looked at every few years. After paying for so many years you want to be sure of the long term viability of the carrier.

An insurance audit will reveal deficiencies, point out excesses and provide you with recommendations. If you would like a referral to a Certified Life Underwriter (CLU) who is knowledgeable in reviewing, analyzing and making policy recommendations, a New York estate planning lawyer can provide a referral. At Ettinger Law Firm, please contact Pattie Brown at 800-500-2525 ext. 117.

Investor Business Daily reports, "Choosing a financial adviser can be akin to a stroll through a minefield. If you don't prepare, your wealth could get blown up by a Bernie Madoff or wounded by someone whose skills are mediocre or simply not suited to your needs. But with proper preparation, chances are you'll find one of thousands of advisers who can help you set and achieve your goals."

Meeting with a prospective adviser to understand how they get compensated for their services as well as determine your comfort level with that individual is essential. Addition insight into an adviser can be found in promotional materials, websites and professional certifications. You may also look up an adviser's Form ADV, which lists complaints and disciplinary actions, online with the Securities and Exchange Commission or your state regulators.

A New York Estate Planning attorney would be a good referral source for a qualified financial adviser.

To view Investor's Daily article which also includes The Certified Financial Planners Board's list of ten recommended questions to ask when interviewing a financial adviser, click here.

Historically, charitable giving rises about one-third as fast as the stock market. While the stock market gains of 2010 remain slight (Dow is up 1.13% at the time of this writing), New York residents may still want to consider using the charitable remainder trust (CRT) in their estate planning.

This trust works well for those who:
• hold highly appreciated assets
• desire an income stream off of the assets
• want to donate to charity; and
• achieve tax benefits.

Because the CRT is irrevocable, this planning should be done with an experienced estate planning attorney.

How the CRT Works, in brief
Your assets and/or property are transferred to a CRT whereby your charity administers the trust. The charity serves as trustee, managing or investing your assets.
The charity pays you and/or your beneficiary a portion of the income generated by the trust for a certain number of years, or for the remainder of your life. At your death or the end of the set period, your charity receives the trust's remaining principal.

CRT Tax Benefits
By establishing a CRT, you avoid capital gains tax on the donated assets, because the charity is exempt from taxes. An income tax deduction may also be declared on the fair market value of the remainder interest in the trust. Additional savings are effected by removing these assets from your estate, reducing subsequent estate taxes.

Two Types of CRTs:
With the charitable remainder unitrust, the percentage rate on the value of the assets determines your and/or beneficiaries' annual payment. If the trust value changes, the payment to you and/or your beneficiaries changes.
A charitable remainder annuity trust is set up to pay a fixed rate of return based on the initial valuation at the time the property is placed in the trust. The trust's assets are never re-valued, so if the assets of the trust increase, the income portion does not change.

Conclusion
The remaining principal of the trust reverts to the charity of choice upon death and/or the end of the set term. (The trust life may be based on the life expectancy of the income beneficiary). Because some grantors may object to the loss of principal, they may purchase life insurance to replace the principal assets. An estate planning attorney then uses an Irrevocable Life Insurance Trust in conjunction with the CRT to assure the trust's value is also distributed to the income beneficiaries.

Online resources to charitable giving:
• The National Center for Family Philanthropy

This website promotes philanthropic values, vision and excellence across generations of donors.

• The American Institute of Philanthropy

This website rates and grades public charities to help donors make informed decisions.

• The Foundation Center

This website provides news on charitable activities and links to private and public foundation websites.

by Michael Ettinger, Esq.

"Elder Law Estate Planning" is a niche area of the law which combines the features of elder law and estate planning that pertain most to the needs of the middle class.

Estate planning was originally for the wealthy few. Middle class families did not consider themselves as having "estates" to plan. During the Reagan years (1980-1988), a great economic expansion occurred, raising the asset level of the middle class into the realm of estate planning. With middle class people suddenly exposed to "estate taxes", the need arose for estate planning, to reduce or eliminate those taxes. A few years later, in 1991, the American Association of Retired Persons (AARP) published "A Consumer Report on Probate" which concluded that probate was a process to be avoided, in all but the most exceptional cases. This marked the beginning of the end of traditional will planning and started the "living trust revolution". AARP recommended that families start using trusts rather than wills, to avoid probate and save their beneficiaries tens of thousands of dollars in the estate settlement process.

Since then, millions of people have set up trusts to:

• Save time and money in settling the estate

• Avoid legal guardianship if they become disabled

• Avoid having their personal and financial matters made public

• Reduce the chance of a "will contest"

• Keep control in their family and out of the court system

At about the same time as living trust planning became popular, the field of elder law emerged to help people navigate the increased complexity of state Medicaid rules and regulations, the soaring costs of nursing home stays, and the fact that people were living considerably longer.

Historically, estate planning was handled primarily by "white shoe" law firms in the deep canyons of downtown Manhattan, while elder law planning emerged out of the Department of Social Services. State employees began to take their expertise in Medicaid rules and regulations into the private sector.

To this day, these two fields continue to grow independently of each other, sometimes to the detriment of the clients lawyers are meant to serve. Estate planning lawyers mostly see estates averaging from the low hundreds of thousands to about two million dollars. Families with estates under one million dollars often cannot afford long-term care insurance. They may now or later need a Medicaid Asset Protection Trust (MAPT) to protect their estates from being depleted in the event a nursing home is required. Since the estate planning attorney is often unfamiliar with elder law, the client never gets the MAPT they need, and the estate plan to avoid probate proves useless when a nursing home stay ends up consuming all of the assets.

For the couple with over one million dollars in assets, estate planning is essential to reduce or eliminate estate taxes. In this case, they should split their assets into two trusts, thereby creating two estates, and doubling the exemption from one million to two million dollars. Still, this couple, while they may be able to afford long-term care insurance, may find one or both of them uninsurable due to health reasons. Perhaps what they really need are two MAPT's, not just to save estate taxes but to also protect the assets from nursing home costs, but they never get them because the estate planning lawyer is not experienced or trained in drafting these documents.

What happens when the estate planning client actually becomes disabled and needs long-term care? They, or the family, often consult with the estate planning lawyer who prepared their plan, but who may be unable to help them, due to his or her unfamiliarity with state Medicaid rules. Many families lose assets that might have been saved. Unknown to the estate planning attorney, elder law attorneys have developed numerous techniques to protect hard won assets, even when the nursing home is imminent, such as "spousal refusal" and the "gift and loan" strategy.

On the other side of the coin, what happens when the older single or couple meets with an elder law attorney instead of an estate planning attorney? These clients are usually sixty-five or over, and are looking for asset protection. The elder law attorney knows how to create a MAPT and often recommends them. However, on the estate planning side of matters, the elder law attorney may miss the need to set up two trusts for the couple to avoid the estate tax. He or she may have little knowledge about estate planning for second marriages, a growing segment of the population, or using Inheritance Trusts to keep the assets in the blood and protect the inheritance from children's divorces, lawsuits, and creditors.

While some of the family's needs may be met, such as asset protection, other needs are left unserved, often because the clients are unaware that these two fields of law complement and overlap one another. In other words, they may get what they want but
not necessarily what they need. These oversights are often visited on the heirs.

Your writer made the conscious decision twenty years ago to develop expertise in these two fields of law simultaneously. This has proven to be invaluable to thousands of families. Clients who originally came in for estate planning services later became elder law clients, converting their revocable living trust estate plans into MAPT's as they got older, or through the use of Medicaid planning services to protect assets when the need for nursing home care actually arose.

Looking back on our experiences in over ten thousand cases at Ettinger Law Firm, we conclude that we have assisted in the creation of a new niche, "Elder Law Estate Planning".

We define this area of law as:

• Getting your assets to your heirs, with the least amount of taxes and legal fees possible

• Keeping those assets in the blood for your grandchildren and, in the meantime, protecting those assets from your children's divorces, lawsuits, and creditors

• Protecting your assets from the costs of long-term care and qualifying for government benefits available to pay for care

While estate planning involves tools for well-to-do families, with acronyms like GRITS, GRATS, and GRUTS, and where elder law serves the diverse needs of our growing senior population, including the less fortunate, through Medicaid, Medicare and Social Security, "Elder Law Estate Planning" addresses the concerns of the vast majority in the middle.

By Michael Ettinger, Esq.

In our experience, a majority of New Yorkers are unaware (blissfully?) that New York State levies an estate tax.

New York's estate tax starts on estates over one million dollars. What is your estate for tax purposes? All of your real and personal property, your bank accounts, investments, IRA's, etc. as well as any life insurance that you own. Add it all up and, if you're under a million, then no problem.

But, if you're over a million, the tax rate starts at 41% (yikes!) and gradually goes down to about 10%. Below is a New York Estate Tax schedule prepared by our firm to help you see where you stand.

Fortunately, if you have a spouse, you can avoid paying up to about $100,000 of these estate taxes by creating two estates, one for the husband and one for the wife, and get two one million dollar exemptions.

For example, let's say a couple has two million in assets. Essentially, what happens here is that each spouse sets up a trust and we put one-half of the house and other assets into each trust. Both spouses are trustees, or managers, of both trusts. Now, say husband dies. Before, everything went to wife and while there is no tax on what you leave to your spouse, when she dies her estate has the whole two million and generates a $99,600.00 tax bill. Instead, with the two trusts, husband's assets stay in his trust, wife is in charge and can buy, sell, trade and spend. But when wife dies, husband's trust goes to the children, or preferably their inheritance trusts, and "bypasses" her estate. He passes one million tax-free. Her estate is also only one million and also passes tax-free. Savings = $99,600.00. Why don't more people do this? In fact they do. Ettinger Law Firm has used this technique for over twenty years in more than 10,000 estate plans to save thousands of New York families many millions in estate taxes.

Remember, you don't get the two exemptions just because you have a spouse. You only get the two exemptions if you set up the two trusts before the first spouse dies...in other words, if your estate is over one million dollars and you have a spouse, the time is now.

By Michael Ettinger, Attorney at Law

.

Historically, estate planning consisted of setting up a will and leaving everything to one's children in equal shares, "per stirpes". The "per stirpes" is latin for "by the roots", meaning that if any of the children predecease their parents then their share goes to their children, if any.

Today, however, adolescence lasts much longer than it used to. Some say that "30 is the new 20" and, anecdotally, we see much evidence of this. Another recent phenomenon is children coming back home to live with their parents, for many reasons, but often having to do with their inability to deal with the vicissitudes of life.

In light of the foregoing, and the fact that trusts, which have become as common as wills today, may continue for many years after the death of the parent, new planning options are available to clients.

For example, one popular plan of distribution is 20% at age thirty, one-half of the remaining balance at thirty-five and the remainder at forty. The theory here is that the child can get the 20% and spend it all, but they have to wait five years before they get one-half of what's left and then, finally, ten years later, when they have hopefully made their mistakes and matured somewhat, they still have about one-half of the inheritance left. A twist on this plan is 20% on the death of the parent, one-half of the remaining balance five years after the parent's death and the remainder ten years after the parent's death. This latter formula is often accompanied by a "cap". For example, upon attaining the age of fifty, any undistributed amounts shall then be distributed outright to the adult child beneficiary.

Hopefully, this gives the reader some flavor of the versatility of using living trusts as an estate planning tool to continue the planning out for many years after the parents' death - perhaps enough time to give late blooming children time to fully develop.

by Michael Ettinger, Esq.
There have been numerous articles written on the wisdom of converting your IRA, or a portion of it, to a Roth IRA. In 2010, the income limit on converting, previously $100,000 per year, has been eliminated allowing many more taxpayers this option.

Traditional IRA's offer a tax deduction on the contribution but tax the distribution, required to start after age 70 1/2. Roths offer no deduction on contributions but the distributions are tax-free (after a five year holding period). Unlike a traditional IRA, with a Roth there is no mandatory age to take required minimum distributions.

Should you wish to convert, you will have to pay the taxes on the converted amount now. For 2010 conversions only, you may defer the taxes due as follows: 50% in 2011 (payable April 15, 2012, or until October 15, 2012, if on extension) and 50% in 2012 (payable as late as October 15, 2013). Your tax advisor can help you determine whether you should make quarterly estimated tax payments.

Kiplinger's says that "It's worthwhile to make the switch only if you don't have to tap the IRA for cash to pay the taxes." Not everyone agrees, as discussed below. But if you convert and don't have the funds to pay the taxes later, you are allowed to undo the conversion until October 15th of the following year. This is also important if your portfolio has fallen, since you may not want to pay tax on a $100,000 conversion if the value of the IRA has dropped to $75,000.

Many advisors feel that you should Rothify at least some of your IRA in the belief that tax rates today are lower than they will be in the future. Trillion dollar deficits tend to support this thinking.

On the other hand, you might be in a different situation if you are now an income earner and your tax bracket will fall when you retire.

Clients like the Roth for its flexibility. With no required minimum distribution, you do not have to pay taxes on money you may not need, but are required to take with a traditional IRA.

By setting up multiple Roth IRA's, or by converting in a series of steps, say $50,000 now and $50,000 in four months, you will be in a better position to undo some of your conversions should your portfolio fall or you are unable for any reason to pay all of the tax due.

For New Yorkers, if you are moving in the foreseeable future to a state with no income tax, such as Florida, you may want to wait until you move to convert. If you are collecting Social Security you may want to ask your tax advisor whether the conversion will cause more of it to become taxable. Remember, taxes on Social Security, as well as your Medicare premium rates, are calculated on your income. If you are older than 70 1/2, you must take your required minimum distribution before converting, which may also affect your tax bracket.

Whereas Kiplinger's says don't convert if you have to pay the taxes from your IRA, the Wall Street Journal disagrees. They found, after running the numbers, that it may pay to convert even if you have to pay the taxes with money inside the IRA. The reasoning is that even though the Roth will be smaller after the taxes are paid, by not having to take withdrawals, some clients will be able to keep more of their Social Security tax-free. By keeping more of their Social Security, they will have to take less from their Roth, allowing it to grow more. In one example using this strategy, the odds against a couple outliving their savings fell from 50% to 12%.

To get a initial answer on whether converting to a Roth makes sense to you, try Morningstar's or Vanguard's online calculator.

As you can see, converting to a Roth is a mind bending calculation that requires the input of your financial advisor, your accountant and your own wisdom of Solomon.

For more information on Roth conversions and IRA's in general, please see retiresecure.com and irahelp.com.

by Michael Ettinger, Esq.
The political struggle between the two major parties over the Federal estate tax, or "death tax" as its opponents prefer to call it, continued with the expiration of the estate tax on January 1, 2010 for one year. On January 1, 2011, the estate tax is scheduled to reappear but not for estates over 3.5 million at a tax rate of 45%, as in 2009 when the tax expired. Under the Bush era tax cuts, enacted in 2001, the estate tax in 2011 and beyond will be imposed on estates over one million, at a tax rate of 55%. Where do these latter figures come from? Those were the exemptions and tax rates in 2001 when the new law took effect. It was assumed that Congress would pass amending legislation some time over the intervening nine years to correct the problem.

Politics being what it is, the parties could not agree. A proposal to extend the 3.5 million exemption of 2009 for an additional year, giving Congress an additional year to negotiate a new estate tax regime, died in the Senate.

The irony of it all is this. Dick Patten, President of The American Family Business Foundation, a Washington lobbying group campaigning for repeal of the estate tax gleefully reported that "for the first time since 1916, there will be no estate tax." You have to wonder, however, who his constituency really is. If the 2009 rule had been extended for one year, the estate tax would have affected about 6,000 families. But because the repeal of the estate tax brings back the capital gains tax (which the estate tax eliminated on assets passed at death), over 70,000 families will now face new capital gains taxes. According to the Center of Budget and Policy Priorities, "a t least 62,500 of these are estates that would not owe any estate tax if the 2009 rules were continued and that thus would be adversely affected by estate repeal. Farms and businesses would constitute a disproportionately large share of the group."

For couples with estates over one million dollars, it is essential that they review their estate plans for unintended consequences should one spouse die in 2010, the year of no estate tax. If there is no tax planning then tax language should be added to avoid the potential 55% Federal estate tax on estates over one million starting in 2011. For couples with tax language in their plans, you must look for disclaimer language (typically used by Ettinger Law Firm since 2006), which allows the surviving spouse to determine the amount, if any, to leave in the deceased spouse's trust on the first death. These plans have the flexibility to "roll with the punches" no matter what Congress ultimately decides.

Couples who have old trust language that has not been updated are most at risk. Typically, these old trusts (and wills) provided that the amount that was exempt from the Federal estate tax remained in the deceased spouse's trust. If a spouse with the old "formula" language dies in 2010, then nothing stays in their trust, since there is no estate tax, and it all comes out to the surviving spouse. Not only may this create a huge tax in the estate of the surviving spouse (potentially $550,000 on the one million that could have been left in the deceased spouse's trust) but you may also lose $99,600 in New York State estate tax savings by not having the choice of leaving the million in that deceased spouse's trust.

Tax professionals, commentators, Congressmen and Senators are all predicting that some sort of settlement will be reached early in 2010 to alleviate these and other problems arising out of the failure to pass amending legislation on time.

We say, don't bet on it.

These are the same professionals who said the problem would be settled long before the December 31, 2009 expiration date. The parties couldn't even agree to a simple extension of the 2009 rule one year, buying time to reach a compromise solution. With the impending retirement of two democratic Senators, and the likely loss of a democratic super majority in the Senate, there is a very real possibility of gridlock resulting in no agreement being reached and the estate tax exemption dropping down to one million at the end of 2010. In other words, the great estate tax chess match may end up in a stalemate.