Delaware joins states addressing lapsed estate tax

Feb 2, 2010 @ 1:11 pm

By Jessica Toonkel Marquez

Delaware attorneys have drafted a bill to address the lack of a federal estate tax, joining a slew of states taking this matter into their own hands. Pennsylvania legislators are considering a similar bill.

The so-called death tax expired Jan. 1, allowing the beneficiaries of those who pass away this year to escape a federal tax of up to 45% on estates valued at $3.5 million or more. The tax is slated to be reinstated in 2011 — with a $1 million exemption and a 55% rate above that. But President Barack Obama is proposing reinstating the estate tax at 2009 levels.

For years, legislators in Washington said they would make sure the estate tax law didn't disappear by the end of last year. But they failed to deliver on that promise.

Virginia and New York have introduced bills to address the issue, with the Washington State Legislature introducing an estate tax bill on Feb. 1. The state's legislation session ends in early March and observers believe the bill may be passed by then, said Dean V. Buler, a principal at carney Badley Spellman, P.S., a Seattle-based law firm.

Meanwhile, Missouri, the District of Columbia, South Dakota, Minnesota, Tennessee, Indiana, Maryland, Georgia, Florida, Maryland, Ohio and Wisconsin are drafting legislation to address estate taxes in their own states.

Delaware, like many states, has a bill that would apply the same language as Virginia, Peter S. Gordon, a partner with Gordon Fournaris & Mammarella PA, said.

The bill would require all estates and trusts to be treated as though they were governed by 2009 federal tax law and would address the use of specific-formula clauses, which the majority of wills and trusts use.

For example, one of the most common formulas used in wills says that a deceased person's children can receive the largest amount possible without triggering federal estate taxes ($3.5 million) and that the remainder of the estate then goes to the deceased person's spouse. But technically, without clear federal estate tax law, it could be interpreted that the entire sum would go to the children, and the spouse would receive nothing, experts said.

“If someone is on their second or third marriage and it says, ‘Give the maximum amount under federal state laws to the children and the rest to the spouse,' that could create a contentious situation,” said Mr. Gordon, who drafted the proposal. He hopes the bill will be introduced in the Legislature within the next several weeks. “I feel very confident that it will be law before June 30,” he said.

Pennsylvania legislators are also considering passing estate tax legislation, although nothing has been drafted so far. The Pennsylvania Joint State Government Commission's Advisory Committee on Decedents' Estates Law are meeting Thursday and plan to discuss whether or not to pass a bill, said Edward M. Watters, chairman of the committee.


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