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       |  Publications · Client Advisories · Press Releases · General News · Events/Seminars 1/1/2010 Supplement to January 2010 Client Advisory To Our Clients who reside in New York, New Jersey, Minnesota, Vermont, Iowa, North Carolina and the District of Columbia:
We recently sent a letter to all of our clients regarding changes in the Federal Estate, Gift and Generation Skipping tax regimes and the manner in which existing estate plans might be affected in 2010 as a result. The changes are of particular concern to individuals who are domiciled in (or who might be deemed domiciled in) a state which does not allow trusts for spouses to qualify for the marital deduction for state death tax purposes without reference to a concurrent federal marital deduction election. The states listed above fall into this category.
Many married clients have estate plans which create special trusts for their spouse that are designed to qualify for the federal estate tax marital deduction to avoid the imposition of estate tax until the death of the surviving spouse. These trusts often are referred to as “marital” or “QTIP” trusts. Because the federal estate tax currently does not apply to estates of those who die in 2010, there is no federal marital deduction from estate tax in 2010, no deduction being necessary against a tax which is not being imposed.
However, the states listed above currently do not have a separate mechanism for treating these trusts as marital deduction property absent an election at the federal level for a federal marital deduction. This results in the possibility for clients who live in one of these states that although a majority or all of the estate may pass to a marital deduction trust, all or a portion of the entire trust still will be subject to state death taxes at the death of the first spouse. It also results in the possibility that a portion of such trusts will be taxed even for clients who do not reside in one these states if they own property in one of these states. While it remains possible that the federal estate tax will be reinstated in 2010, and it is certainly possible that states will act to remedy this discrepancy if the federal estate tax is not reinstated in 2010, we want you to be aware of this potential negative tax result.
If you are concerned about how your plan would operate if you were to die while the federal estate tax does not apply or if you would like to change your plan to distribute your estate to your spouse outright in such an event in order to avoid state death taxes, please contact your Cummings & Lockwood attorney.
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