2011 Estate Tax Changes

As most people know, Congress and the President have been debating whether or not to extend the current tax rates and applicable rates beyond the end of 2010. In a last-minute agreement, Congress agreed to extend the “Bush” tax cut through 2012. One of the key disagreements between members of Congress was the provision related to the Federal Estate tax, but ultimately, they passed the legislation, which contains new regulations for the Federal Estate Tax Law. While the tax will remain the same for 2011 and 2012, there are a few new additions to be noted.

Most notably, estates will now be able to claim a $5 million exemption per person or $10 million for couples. This exempts estates valued at less than $5 million from paying any Federal Estate Tax, which is dramatically different than the prior law that would have exempted only $1 million per estate. Second, the top tax rate for Estates, Gifts and Generation Skipping Tax will be capped at 35%, which is dramatically lower than the 55% top rate that would have applied under the prior legislation. Third, the $5 million exemption can also be used to shield gifts from Federal Gift tax as well, which is also different from the prior legislation that allowed individuals to make a maximum of $1 million in tax-free gifts during their lifetime. Fourth, individuals who died in 2010 can choose between the new tax laws or those that governed by the 2010 model. Finally, any of the unused $5 million exemption can be passed to the surviving spouse by the personal representative of the decedent’s estate, which provides a significant benefit different from the prior legislation that would have resulted in that unused exemption being lost.

These new changes will allow individuals more flexibility in managing their wealth and distributing it as they wish. For any unanswered estate planning questions, feel free to contact our office.

This Week In Trust Appeals

Case: In the Estate of Helen D. Wallace, Deceased
Court: Tenth Court of Appeals, Waco
The Tenth Court of Appeals this week has decided a case involving the jurisdiction of the Probate Court to hear a matter involving the interpretation of a will that possibly contains a trust.

Theresa Isenberger and Mary Moriset appealed the dismissal of their petition for construction of the will of Helen Wallace, their sister. This will was offered and admitted to probate in the County Court at Law of Johnson County, Texas. Upon their filing of the Will construction suit, the Independent Executor of the Will, Robert Semple, filed a plea to the jurisdiction claiming that the County Court at Law did not have jurisdiction because the suit related to a trust, over which the District Court has exclusive jurisdiction.

The Court of Appeals noted that section 5(c) of the Texas Probate Code (since repealed) gave the County Court at Law original probate jurisdiction over this matter. The reason being that Section 5(c) gave courts power to hear “all matters incident to an estate.” Isenberger and Moriset held that their action was a Will construction suit, therefore incident to an estate.

However the Independent Executor disagreed, citing the phrase in 5(c) of “unless otherwise provided by law.” He contended that because the property code grants the District Court exclusive jurisdiction to hear all proceedings concerning trusts, that this matter was to be heard in District Court.

The Court of Appeals disagreed however. They held that a power of appointment and a trust are not the same. Since the Will of Helen Wallace was questioned to create either a power of appointment or a trust, the Court found that it was erroneous for the trial court to grant the plea to the jurisdiction with no determination of whether the bequest was a valid power of appointment or something else, including a trust, or whether the bequest failed entirely. They noted that the District Court would have jurisdiction only if and when the County Court at Law determines that a trust was created.

If you have any questions about trusts, do not hesitate to contact us at 713-260-3926.