Experts knew that problems could arise when the one-year repeal of the estate tax occurred in 2010, and those problems are beginning to show their heads. The lapse is causing delays in the administration of many wills. Tax attorneys advise that small distributions can be made, but that the large ones should be withheld until the current tax situation becomes clearer.

At the end of the ten year estate tax reform set out by former President Bush, there would be one year, 2010, in which there was no estate tax at all. However, in 2011 the estate tax will be back, and the highest tax rate will be 55% for estates over $1 million. One problem that has been raised concerns wills that are to be probated during 2010 but still contain clauses that fail to take into account the one year lapse. The way that some clauses are written could result in the changing the testator's intent for many devises or even accidentally disinheriting some beneficiaries altogether. Some clauses refer to exemption amounts and tax rates that no longer exist.

Florida is among a handful of states that is working on legislation to fix some of the issues. The legislation has been met with criticism that a retroactive estate tax would make a beneficiary who had already taken an inheritance in 2010 tax-free now owe back taxes to the government.

Many advisors have even chosen to frieze wills until the issue resolves itself next year. Not shockingly, beneficiaries who were due a hefty inheritance in 2010 tax-free are not pleased with the prospect of losing up to 55% of their expected devise. Other attorneys are having their clients return to make a codicil to their wills that would clarity their intent should they pass this year.

Source: Financial Advisor News, "Tax Questions Delay Inheritances" 9/17/10