Death, Taxes, and Uncertainty

We all know Ben Franklin’s quote about the certainty of death and taxes, but for at least one family in Connecticut, the death taxes were not certain enough.  In May of 2011, the Connecticut legislature passed a law lowering the amount of estate tax that a Connecticut estate would owe the state from $3.5 to $2 million.  Moreover, even though the legislature enacted the law in May, it made the law retroactive in that it was effective for any resident of Connecticut who died after December 31, 2010.

For one family, the Blakeman’s[i], the retroactive Connecticut estate tax meant that the lower exemption would cost them approximately $130,000 in additional Connecticut estate taxes than they would have paid if the law had not changed after the decedent’s date of death.  The Blakeman Estate filed a lawsuit claiming the retroactive tax is an unconstitutional taking.

This is an interesting story about the uncertainty of taxes because it involves theoretical questions about the law.  For instance, the U.S. Supreme Court has allowed retroactive laws so long as they are modest or, in the realm of taxes, when no one was harmed by planning done under the prior tax regime.  In other words, since no one plans on dying to save estate taxes, changing the estate tax law after someone’s death does not prejudice any planning or expectation that the decedent had during life.  Of course, these are the type of matters that leave lawyers fighting over the meaning of words or intentions.

On the other hand, looking at this story practically, it begs the question of whether any pre or post-mortem planning could have been done to mitigate estate taxes.  After all, estate planning is often about minimizing or eliminating estate taxes and there are choices and planning opportunities in every estate administration that could minimize estates taxes.

-  Gary Altman, Esq. and Michael Wolsh, Esq.

[i]  For more information on the Blakemans' case, click here.

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