Tennessee Legislature Changes Wills of 2010 Decedents
People who die in 2010 do not have to pay federal estate taxes (unless Congress enacts a retroactive change in the law). However, most people have assumed that there would be federal estate taxes at the time of their death. Based on this assumption, numerous Wills have formulas that are based on the federal estate tax system. In many cases, these formulas are either difficult or impossible to interpret in the current environment. These broken formulas will lead to distorted estate plans and needless litigation.
The Tennessee legislature has taken a bold move to revise wills of people dying in 2010 which contain references to the federal estate tax system. On Monday, March 1, 2010, the House approved SB 3045, which had previously been approved by the Senate. Assuming the bill is signed by the Governor, all references to the federal estate and generation-skipping transfer tax laws will be interpreted as they applied with respect to estates of decedents dying on December 31, 2009.
In order for the new law to apply, the Will must:
- contain a formula referring to the "unified credit," "estate tax exemption," "applicable exemption amount," "applicable credit amount," " applicable exclusion amount," "generation-skipping transfer tax exemption," "GST exemption," "marital deduction," " maximum marital deduction," or " unlimited marital deduction."
- measure a share of an estate or trust, based on the amount that can pass free of federal estate taxes or the amount that can pass free of federal generation-skipping transfer taxes; or.
- is otherwise based on a similar provision of federal estate tax or generation-skipping transfer tax law.
The new law will apply to decedents who die after December 31, 2009, but before January 1, 2011. The new law will also apply to formulas contained in revocable trusts.
The new law will not apply if:
- federal estate taxes are reinstated retroactive to January 1, 2010;
- the Will or trust is executed or amended after December 31, 2009;
- the Will or trust manifests an intent that a contrary rule will apply if the decedent dies on a date on which there is no then-applicable federal estate or generation-skipping transfer tax;
- the Executor, or Trustee of a revocable trust, and all beneficiaries who would be affected by the new law, opt for the new law not to apply within nine months of the decedent's death; or
- the Executor, or any affected beneficiary, files a court proceeding within 12 months following the decedent's death, and convinces the court that the decedent intended for the formula to be construed based upon the law as it existed after December 31, 2009.
The great majority of wills that I have drafted over the last several years will actually work better without the new law. In order to get the full benefit allowed by the absence of federal estate taxes, the family will be forced to opt out of the new Tennessee law. There is always a danger that one or more family members will withhold their consent as a bargaining chip or because they are disappointed with the Will.
I knew several of my clients had a problem. I have been busy preparing codicils and amendments to revocable trusts to correct these problems. Though I hope to identify and fix all of the problem documents, it is certainly possible that one of my clients could die before fixing the problem and I will be glad that the new law was passed.
The new law will help numerous individuals who were unable to make changes or chose not to amend their documents. However, in some cases, the new law will be harmful and will force families to sign a unanimous agreement or file a court proceeding. In all cases, it is better to make sure that your documents clearly state your wishes without having to rely on the new law, or a lawsuit, or a document to be signed by your family after you die.
