Changes in Estate Tax Law Require Regular Review of Estate

The past few years have seen a number of significant changes in estate tax law; so much so that estate planners—as well as anyone with a will, trust, or estate plan themselves—have had to stay on their toes! The most significant event in recent estate tax history was the lapse of the estate tax in 2010. This lack of tax was so momentous, and was such a surprise, that we are still seeing the effects of it two years later.

A recent article from Reuters describes the ongoing saga of the Tweten family of California, and how the disappearance of the federal estate tax in 2010 caused (and may still be causing) a lengthy legal battle between father and daughters. Leonard Tweten and his wife of 58 years, Eileen, founders of Magnolia Audio Video, established a trust in 2008 which utilized a common formula clause to help minimize estate taxes.

“The formula clause typically divides the estate so that children get the amount of assets in the federal estate tax exclusion (currently $5 million per person), with the rest going to a marital trust for the surviving spouse. This allows the full amount of the exclusion to pass to the heirs tax-free.”

This formula clause is a wonderful tool when the estate tax exclusion amount hovers around $2 million, exactly the amount it was in 2008 when the Twetens set up their trust. Unfortunately, “in 2010, the exclusion was unlimited, because there was no estate tax. So when Eileen died in April of that year, her whole estate, rather a few million dollars, would have gone to the kids, leaving Leonard out of the money.”

The Twetens were not unaware of the exclusion, and made an eleventh hour change to their trust only 12 days before Eileen Tweten’s death. Unfortunately, their efforts were not enough. “The couple’s adult daughters, Nancy Crowe and Janet Houston, petitioned the court to invalidate that amendment on grounds of forgery and incapacity, while their father petitioned to allow the trust’s modification.”

The court eventually had to throw out the amendment, “noting that it had not been notarized as required by the trust”, but sided with Leonard Tweten in spite of this, letting the original intent of the Tweten’s estate plan stand. The Tweten’s daughters, however, plan to appeal the court’s decision.

The lesson we can all take away from the Tweten’s experience is that no matter how safe you may feel with your current estate plan, it is absolutely essential to review your trust regularly, and consult your estate planning attorney about any changes to estate tax law that may have been enacted since your last review. Contact our office for more information.

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