2010 decedent’s trust formula funding provision directs all assets to marital trust because no federal estate tax.
In 2006, Frank L. Steingass created a revocable trust for his wife, Donna, his stepson, and his stepson’s children. The trust agreement acknowledged the uncertain nature of the federal estate tax in 2006, and provided that upon Frank’s death (1) if the estate tax was then in effect the assets would be divided between a marital trust and a family trust and (2) if the estate tax was not then in effect all of the trust assets would pass to the marital trust. Frank died on December 11, 2010 (just before the passage of the 2010 Tax Act). Donna sued for declaratory judgment that all of the trust assets should pass to the marital trust. The court found in Donna’s favor and the family trust beneficiaries appealed.
On appeal, the family trust beneficiaries argued that the 2010 Tax Act retroactively reinstated the estate tax for all of 2010 so the estate tax was effective as of the date of Frank’s death. Donna argued that the opt-out provision of the 2010 Tax Act, which allowed the estate of the 2010 decedent to remain under the repeal regime, created circumstances under which the federal estate tax was not applicable to Frank’s estate at the time of this death.
The Court of Appeals of Ohio affirmed the trial court and held that the federal estate tax was not in effect as of the date of Frank’s death and all of the trust assets should be allocated to the marital trust on the grounds that: (1) on the actual date of Frank’s death, the 2010 Tax Act had not yet been enacted so there was no federal estate tax in effect; (2) because the 2010 Tax Act gave Frank’s estate the option to remain under the federal estate tax repeal regime it was as if the estate tax had never been reenacted; and (3) it was Frank’s intent to pay as little federal estate tax as possible while primarily benefitting Donna and therefore passing the assets to the marital trust comports with Frank’s intent and the terms of the trust agreement.