The following is a true story. The names have not been changed. This story comes straight from a recent tax-court case. Unfortunately, it could happen to you. However, the story also illustrates that age-old wisdom - "a stich in time saves nine!"
Consider the case of Helen Levitt, the unfortunate widow of Samuel I. Levitt, who created an estate plan in 1978. He never reviewed or updated the plan before his death in 1985. As required, Helen Levitt filed an estate tax return after her husband passed away.The tax return showed no estate taxes due at her husband's death. The IRS audited the return and assessed $143,327 in taxes against the estate. The IRS claimed that because Samuel Levitt had not amended his estate plan to reflect new legislation enacted in 1981, his plan did not qualify under the new rules that expanded the amount of the property that could pass estate tax-free to a surviving spouse. Therefore, the IRS claimed that the additional tax was due.
Five years passed as the estate and the IRS waged an expensive battle over the Levitts' position and the IRS' audit. This all culminated in litigation in the courts. Finally, the U.S. Tax Court (95 T.C. 289) upheld the Levitt family's position. The court ruled that Samuel Levitt's estate plan could be interpreted as qualifying under the 1981 legislation. So, instead of owing $143,327 in taxes, the estate was allowed to keep the money.
The moral of Helen Levitt's tale is that because of changes in the law - as well as changes in your family situation and your financial picture - a regular review of your estate plan can protect your heirs from avoidable trouble with the IRS. If your wills or trusts were set up several years ago, you owe it to yourself to have a review with a qualified estate planning professional. Just like our physical bodies need periodic checkups to make sure everything is biologically OK, our estate planning needs to be reviewed every few years to make sure that the plan is consistent with current laws and is consistent with our wishes and desires for our loved ones.