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Federal Estate Tax Laws that May Affect Your Will in a Second Marriage

Mike Phone

By Hoffman & Associates

As a result of the 2001 tax legislation, the Federal Estate Tax has been repealed for 2010.  While Congress is still debating the issue, as it stands now if a person were to die in 2010 there might be no federal estate tax on their estate.

There could be an issue with providing assets for some spouses under a Will, particularly if it is a second marriage.  Typically, a Will is drafted utilizing a formula to maximize the federal estate tax allowance that is in existence at the time of your death.  While no one in the legal and accounting communities anticipated that Congress would actually allow 2010 to arrive with a total repeal of the federal estate tax law, we are currently faced with that issue.  There is talk that if Congress reinstates the federal estate tax they will make it retroactive back to January 1, 2010.  However, some may challenge this as unconstitutional, and we do not know if they would be successful.

Therefore, under the current law, if the typical formula is used in your Will to maximize federal estate tax allowances, all of your assets will go to the Family Trust, also known as the Credit Shelter Trust.  What this means is that if your spouse is not named as a beneficiary under the Family Trust, they will not get any benefit from your estate as the Marital Trust created for the benefit of the spouse will not receive any assets from your estate.

In some instances in second marriages, a person’s Will provides for spouse under a Marital Trust and for children from a previous marriage under the Family Trust.  Therefore, under the current tax law this is detrimental to the surviving spouse, as all assets will go to the children from the previous marriage.  If this is not your intent, it is advisable that you contact an attorney to execute a short Codicil to your Will to assure assets will pass to a spouse in a second marriage.

Of course, if the federal estate tax is reinstated and made retroactive, there is no issue.  However, if it is not retroactive, if you pass away during a “total repeal” period (2010), your spouse will lose out on the benefits of your estate.

For more information regarding this or any other estate or tax planning concern, please contact us at 404-255-7400 or info@hoffmanestatelaw.com.