(Dow Jones) The disappearance of the estate tax this year will bring unintended consequences for many wills, and the threat of possible lawsuits that could follow has moved tax attorneys to protect themselves.
Among the worries are disgruntled would-be beneficiaries who sue over accidental disinheritance, or others unhappy over an unexpectedly heavy tax bill or shift in bequest.
When things go wrong, people tend to want to have someone to blame, and family members may focus on an adviser who failed to inform them of substantial tax changes and traps in 2010, said John J. Scroggin, an attorney in Roswell, Ga.
Many attorneys are doing the best they can, through emails and letters, to warn clients they need to review wills. The paper trails they create could help guard against suits alleging malpractice or a violation of fiduciary duty.
Trusts and estates groups have even come up with form letters that advisers can use to warn clients. The National Association of Estate Planners & Councils, for example, makes a sample letter available on its Web site and instructs planners to fax, email or mail it to clients, keep a list of people to whom it was sent, and do follow-up calls and emails to clients.
Jonathan Blattmachr, a retired partner at law firm Millbank, Tweed, Hadley & McCloy in New York, has told planners in recent lectures that "you have to send clients individual letters telling them this is a big deal and that they have to come in." Blattmachr developed a client letter that is posted on his Web site, www.interactivelegal.com.
The estate tax lapses for this year only, under 10-year-old legislation that gradually reduced the rate to zero. Congress had been widely expected to change the law before that happened, and the estate tax community was taken by surprise by the repeal. Most people thought Congress would, at a minimum, keep the estate tax at 2009 rates of 45% for estates of $3.5 million and higher.
The levy is set to revert next year to rates of 55% for estates of $1 million or higher.
Legal problems may arise with the many wills drafted with formula clauses, which refer to estate-tax exemptions. With the tax set at zero for now, those formulas are cast into doubt. The result could be disinheritance of a spouse, children or grandchildren.
A lawyer with thousands of wills under his care would have to spend thousands of hours to review them. Scroggin, who drafted the letter for NAEPC and has some 4,000 wills, said it would take him around 8,000 hours to review them all for the 2010 and 2011 changes.