To all Lawgic customers:

The inaction of the U.S. Congress on changes to the Estate Tax laws has caught everyone by surprise but you needn't worry about your documents being obsolete.  Not only has Lawgic had since its beginning provisions that allow for gifts to a spouse (or to nonspousal beneficiaries) in amounts that differ from a standard formula, but we also believe the wording of our credit shelter and marital deduction formulas dividing the estate into shares can produce the optimum estate tax result for many of your clients under the currently existing law, at least for those with a unified family.

Although we can not predict with certainty how a court would interpret language phrased in terms no longer applicable, in many cases we expect your clients will be well served by our formula language that allocates the maximum that can pass tax-free to a Credit Shelter Trust.  Clients are often focused on, and the language designed for, obtaining a result that produces the least tax.    In a unified family situation, that "Family Trust" typically provides for both spouse and children, or primarily for the spouse during life.  Given the reinstatement of the estate tax at lower levels in 2011 (current law), or the potential and possibly retroactive revisions to the law during 2010 (widely expected), it can be extremely beneficial for the maximum amount of the family's wealth to be in a tax-protected trust if a client dies during the interim.  In other situations, however, such language might ultimately be interpreted to effect a significant change in a client's intended estate plan and produce startling results.

Therefore, each client's situation should be reviewed in light of the law that took effect on January 1, 2010.  If a formula gift of the credit shelter amount is outright to a client's children in anticipation of that amount being only $3.5 million with the balance passing to the spouse, that spouse may be unhappy to learn that the gift is interpreted so that he or she receives nothing and the children everything by virtue of the formula. While state courts should focus on the decedent's intent and might preserve the prior divisions, planners may wish to do a simple codicil or trust amendment to clarify the client's intent rather than leave this up to judicial interpretation particularly in multiple marriage situations in which   the gift of the entire estate to the children could be disastrous.   Of course, other factors also may apply in shifting interests from one beneficiary (e.g., a Marital Trust with more generous provisions) to another (a Family Trust with more restrictive ones) and some clients may prefer to have the formula operate as suggested above.  

A new concern under the 2010 regime is how to allocate basis step-up to various assets, with an additional step-up for marital property.   The powers of the Trustee or Personal Representative in Lawgic documents have always included the ability to make elections for IRS purposes, and the basis adjustment allocation available under new Section 1022 of the Internal Revenue Code falls smoothly into that category.   Maintaining a marital gift, however, is crucial to having the assets to which the $3 million "extra" basis allocation can be made.  

The primary question becomes: should you prepare a codicil or trust amendment for at-risk clients in early 2010 in anticipation of protracted Congressional discussions if the estate tax is reinstated in 2010?  Using the criteria described above, you may wish to review each client's situation to decide if a further limitation or clarification is advisable.   We have included links to templates and sample documents for codicils and trust amendments that contain language limiting the formula gift to reimpose a $3.5 million cap on the nonspousal gift (or a greater or lesser amount).   In complex documents for which optimum tax planning may be secondary to a specific division of assets, you may prefer to use the "catch-all" language included as an alternate approach that restores the disposition of assets as if it were still 2009.   A separate codicil and trust amendment is also provided to make specific reference to the new basis allocation election and to protect the fiduciary in its exercise of discretion.

We have included here and on the Lawgic website a link to an advisory newsletter written by Holland & Knight which gives some suggestions for opportunities under the new law in greater detail.
http://www.hklaw.com/id24660/PublicationId2820/ReturnId31/contentid54611/  

Given what we have seen, it is unlikely that stability and certainty in the estate and gift tax area will be achieved even by next year.   You may wish to consider alternatives within the Lawgic program, both existing and to be expanded in the next release, to deal with this situation.   If you have colleagues that are currently lacking in resources to guide them through situations like this refer them to Lawgic.   Remember it is a win-win, they get a great product and you save an extra $150 off your renewal.  

Download the template & document packages:

California: 
Templates: http://www.lawgic.com/downloads/templates/CA_WT.exe
Sample documents: http://www.lawgic.com/downloads/docs/docs.exe

Florida: 
http://www.lawgic.com/downloads/templates/FL_WT.exe
Sample documents: http://www.lawgic.com/downloads/docs/alldocs.exe

Georgia: 
http://www.lawgic.com/downloads/templates/GA_WT.exe
Sample documents: http://www.lawgic.com/downloads/docs/alldocs.exe

Maryland: 
http://www.lawgic.com/downloads/templates/MD_WT.exe
Sample documents: http://www.lawgic.com/downloads/docs/alldocs.exe

New York: 
http://www.lawgic.com/downloads/templates/NY_WT.exe
Sample documents: http://www.lawgic.com/downloads/docs/alldocs.exe

Please note - the template package is a self-extracting file.  Once you have saved the file to your computer, then double click the file and the templates will be extracted automatically to your Lawgic program. 

Thank you,
Lawgic Support Team