Proposed Florida Legislation Responds to Estate Tax Repeal

February 14, 2010

Image: Florida State Library and Archives

Since late December, when it first appeared that estate tax repeal would actually happen, estate planners nationwide have been discussing its potential negative consequences.

Consider this fact pattern: a second marriage, and a normal A-B estate plan.

The plan uses a formula allocation clause directing the greatest amount of assets that can pass free of estate tax to a credit shelter (bypass, or “Fund B”) trust. The remaining assets pass to a marital (“Fund A”) trust. The second spouse is beneficiary of the Fund A trust, which is intended (of course) to qualify for the estate tax marital deduction. The children of the decedent (but not of the second spouse) are the only beneficiaries of Fund B.

Under 2009 law, the first $3.5 million of assets (if no adjusted taxable gifts had been made) would go to Fund B for the benefit of the children, and the remaining assets would go to Fund A for the spouse. Now, in 2010, the result varies, in that all assets pass to Fund B, leaving nothing available for the surviving spouse.

Clients with this situation or one similar to it would be well advised to update their estate plans. Yet, of course, not all of them will. Unintended disinheritance may occur, with expensive litigation being a likely result.

Juan Antunez recently commented on a statutory response to this problem proposed for adoption by Florida’s legislature, which convenes in regular session on March 2, 2010. You can track the status of CS/HB 361 here. Full text of the bill is here.

Section 4 of the bill would create a new statute, F.S. 736.04114. Upon application of a trustee or qualified beneficiary, a court would be authorized to construe the terms of a trust instrument containing a formula devise referring to pre-2010 estate tax law. The court could consider the settlor’s likely intent and the facts and circumstances surrounding the creation of the trust, without regard to the apparent plain meaning of the trust instrument. The statute would apply to transfers of beneficial interests in trusts occurring in 2010. It would be retroactive to January 1, 2010.

Antunez reports that statutory fixes are under consideration in several other states, including Virginia, Maryland, Nebraska, South Dakota, Tennessee, Washington, and New York, and provides a useful link to an interesting map published in Forbes showing states’ various estate/inheritance tax laws.