Tax Law Blog | IRS Tax Attorneys

While Congress dilly dallies, the states are racing to come to the aid of families whose estate plans have been thrown into disarray by the Jan. 1 lapse of the federal estate tax. That lapse could, among other things, lead to the unintended disinheritance of spouses, which could in turn lead to expensive legal fights among family members and, ultimately, the impoverishment of some widows or widowers. It could also, ironically, force some families to pay extra state estate taxes.

Legislators in a handful of states, led by Virginia, have already introduced legislation to try to head off such bad results. Virginia’s House of Delegates passed its “emergency” bill unanimously Tuesday and the state’s Senate is expected to take it up immediately. Similar bills are pending in Maryland, Nebraska, South Dakota, Tennessee and Washington. Other states, including Florida and New York, have somewhat different legislation pending.

Most of the new emergency laws would set a default rule for interpreting wills and trusts while the federal estate tax is repealed, if the document itself doesn’t spell one out. The rule: Any tax terms or formulas should be read as if the estate tax law of 2009 were still in effect. The proposed emergency laws also typically include a backstop provision allowing any potential beneficiary or executor to go to court, within a year from the date of death, if he or she doesn’t think that this default is what the deceased really wanted. (Florida takes a different approach; there’s no default rule, just the opportunity to go to court.)

“The primary benefit is going to be keeping families out of state court litigation,” says Dana Fitzsimons, an estate lawyer with McGuire Woods in Richmond, Va., who helped legislators draft the Virginia bill.

Estate lawyers have a keen interest in pushing through these laws, beyond just concern for the welfare of their clients. By clarifying poorly drafted, ambiguous documents, these laws could prevent a flurry of legal malpractice suits.

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