Estate Tax Proposals
The tax laws relating to estate planning after 2009 are far from certain at this time. Under the present tax laws, upon an individual’s death:
- The sum of $3,500,000.00 can be passed tax-free in 2009;
- There will be no estate tax in 2010 because the estate tax for 2010 has been repealed; and
- Only the sum of $1,000,000.00 can be passed tax-free in 2011 when the estate tax is automatically reinstated in such year.
It is highly unlikely that the estate tax will be repealed for 2010 or that the amount that may be passed tax-free will be reduced to $1,000,000.00 for 2011. There are a number of bills pending in Congress pertaining to the estate tax. These bills or proposals are as follows:
- Obama Administration Proposal;
- Pomeroy Bill (H.R. 436);
- Mitchell-Kirk-Nye Bill (H.R. 498);
- Baucus Bill (S. 722); and
- McDermott Bill (H.R. 2023).
The main features of these bills may be summarized as follows:
- Exemption Amount - $2,000,000.00 to $5,000,000.00. The most likely exemption amount is $3,500,000.00, the exemption amount for 2009.
- Indexing of Exemption Amount – Generally Yes.
- Highest Tax Rate – 45%
- Unification of Gift and Estate Tax – No. The amount of tax-free gifts will remain at $1,000,000.00.
- Basis – The step-up in basis to fair market value at death is retained.
- Discounts – Generally eliminated. The Pomeroy Bill allows marketability discounts, but only if the entity is an active business.
- Portability of Unused Exemption Amounts – Varied.
Recent Changes in Texas Law
Execution Requirements
Prior to September 1, 2009, medical powers of attorney and directives to physicians (living wills) were required to be executed in the presence of two witnesses. After September 1, 2009, it is no longer necessary to have witnesses to the execution of these documents, provided these documents are notarized.
After September 1, 2009, if the person granting a medical power of attorney is unable to sign, a digital or electronic signature may be used.
The self-proving affidavit for an advance declaration of guardianship no longer requires the witnesses to sign as witnesses and then sign again in the self-proving affidavit. The witnesses are only required to execute the document as witnesses in the self-proving affidavit.
Will and Trust Contest Clauses
Beginning September 1, 2009, will contest clauses and trust contest clauses will not be enforceable if probable cause exists for bringing the action and the action is brought and maintained in good faith.
Homestead in Trust as Exempt Property
Prior to September 1, 2009, it was unclear whether a homestead that was placed in a revocable trust was exempt property. After September 1, 2009, a homestead that is placed in a revocable trust continues to be exempt property. This provision may also apply to trusts other than revocable trusts in limited circumstances.