Proposed New Laws


There are some proposed new rules and laws which would affect estate planning.  First, let’s review the current estate tax law.  The estate tax is a federal tax.  At this time there is no Hawaii estate tax or inheritance tax.  As a result of the 2001 tax act, the current estate tax law is very strange.  A person can die in 2009 with up to $3,500,000 of assets without any estate tax.  For amounts over $3,500,000, the estate tax rate is 45%.  In 2010 there is no estate tax at all.  Bill Gates could die in 2010 with 50 billion dollars of assets and pay no death tax!  In 2011 a person can die with only $1,000,000 tax free.  For amounts over $1,000,000, the estate tax rate starts at 41% and goes up to 55% for amounts over $3,000,000.

This strange law was created by Congress in 2001.  At that time, a person could die with $1,000,000 of assets tax free.  The 2001 tax act pretended to get rid of the estate tax.  It gradually increased the amount of assets with which a person could die tax free.  The tax free amount was increased to $1,500,000 for persons dying in 2004 and 2005, $2,000,000 for 2006 through 2008, $3,500,000 for 2009, and then in 2010, there would be no estate tax at all.  However, the bill that passed Congress had a “sunset clause.”  It provided that unless Congress acted to extend the law, this new law would disappear at midnight on December 31, 2010, and on January 1, 2011, we would return to the law which was in effect in 2001 before the 2001 tax act was passed.  Some of the nation’s top estate and gift tax scholars believe that Congress never did intend to get rid of the estate tax.  Congress just pretended they would get rid of the tax, to win political points.

At the end of March 2009, Senate Finance Committee Chairman Max Baucus (D- Montana) made an important announcement.  He announced proposed legislation to be called “The Taxpayer Certainty and Relief Act of 2009.”  The word “certainty” in the title is to reassure the public that we will finally know for certain what the estate tax law is going to be.  The major proposal of the bill is to make permanent the 2009 estate tax, gift tax and generation skipping tax laws.  This means that the bill proposes to keep $3,500,000 as the amount exempt from estate taxes in 2010, 2011 and beyond.  The bill also proposes to index the amount of exemption for inflation.  This means that the amount exempt from estate taxes would increase as the cost of living goes up.  The bill proposes other changes, both in estate tax laws and in income tax laws.  After the details of the proposal are available, I will give you a more complete report on this important bill.  I believe there is a very high probability that Congress will pass changes to the estate tax laws this year.  The reason I believe this is that I don’t think they would want wealthy people to die in 2010 without being taxed.

The Deficit Reduction Act of 2005 was the most sweeping change in 13 years of laws relating to Medicaid for nursing homes.  It was signed into law by President Bush on February 8, 2006.  The State of Hawaii is so slow in implementing it that the new law is still not being followed in Hawaii.  On March 23, 2009, the Department of Human Services finally held a public hearing on proposed changes to the Hawaii Administrative Rules based on the Deficit Reduction Act.  However, when I read the proposed rules, I did not find any rules showing the most important changes made by the federal law.  Therefore, until further notice, we can still get nursing home residents qualified for Medicaid under the less strict older law, which is still being followed in Hawaii.




4 replies
  1. Dee Engelman
    Dee Engelman says:

    What are the potential problems of changing a revocable trust during a lifetime to exclude trustees at the time of death. What rights do those trustees have to fight the change in a court of law?

    Is it best under these circumstances to let the estate be handled as a trust or is it advisable to enter it in probate court to start the clock ticking thus allowing only a limited time for the eliminated trustees to respond.

    In short, is it a good choice to use probate court or does that allow the court to step in to make the decisions and as you have mentioned, bring about potential large legal fees? Is there anything good to be said for this choice?

  2. sanford
    sanford says:

    @ Dee – There is no problem in changing a revocable trust during lifetime so long as the Settlor making the change is competent and not being subjected to undue influence. The Settlor can change the successor trustees at any time and those eliminated successor trustees have no recourse. If there is a question as to the Settlor’s competency, or if the Settlor is being subjected to “undue influence,” then it may be possible for the eliminated trustees to challenge the change. If there is no question about competency or undue influence, it is not necessary to get the probate court involved.

  3. Dee
    Dee says:

    As I understand it, if one files in probate court, there is a limit to 6 months to challenge. If it is not filed, it can be challenged at any time. For this reason filing in probate court is a consideration.

    The eliminated trustees may wait until the value of the estate is available before deciding to challenge. If the value of the estate is enough, that may be cause to challenge their elimination.

    If the value of the estate is not presented before the six months, do the eliminated successor trustees have any recourse or can they demand to know the value of the estate if it has not been presented by the end of the 6 month period?

  4. sanford
    sanford says:

    @Dee – I’m sorry, I think there is a misunderstanding somewhere. Are you talking about probate law in Hawaii or in some other state? The probate laws vary from state to state and our in depth knowledge of probate is limited to Hawaii probate law. Also, are you talking about appointment of trustees of a trust or about appointment of personal representatives of a probate estate? There is a difference. In any event, we are not sure where you came up with a 6 month limit. What is the source of this information?

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