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Estate Tax Repeal. People ask estate planners whether their jobs are in jeopardy if the federal estate tax is
repealed. Roy Adams, a prominent estate planning attorney from New York had a recent article in Trusts and
Estates entitled "The Sky Is Not Falling". This article argues, admittedly. from a position of self-preservation,
that we estate planners will not be out of work, regardless of the actions taken by Congress in the next few
months.
Some of the points made by Mr. Adams bear repeating here and are borne out by my experience.
Present Law. Under the present estate tax regime, with a $1.5 million exemption for 2005, scheduled to
increase to $2.0 million per person January 1, 2006, many of our clients are not going to be worried about the
federal estate tax (unless, as is extremely unlikely, the exemption pops back to $1.0 million per person in
2011). Elimination of a death tax has not eliminated concern over estate planning among our clients.
Trusts. Trusts are still the avenue of choice for most clients. They want assets protected from creditors or
predators after death. Clients want to control the ultimate disposition of property. The senior generation is
increasingly concerned about the impact of divorce and the lack of retirement savings by their children or
grandchildren. It is also common that there are special needs of some sort, whether they be of some sort of
disability, financial problem or personal problem that favors a trust that will administer property in the event of
death or incapacity.
Second marriages are becoming more common. These bring complexities of separate children and the
tensions that frequently exist between step-parents and step-children, especially after the death of the birth
parent. In my practice, the fact that there is no estate tax does not mean that clients are not interested in
keeping their estate plans up to date, with changes in wealth and family circumstances.
State Taxes. As we pointed out last month, states will be enacting various kinds of death taxes to replace the
revenue lost from federal estate tax repeal. Estate planners will be back where we were twenty years ago,
with a variety of state death taxes that may influence residency, even though family reasons and estate
planning considerations don’t change by moving to the state next door or across the country.
Lifetime Gifts. Lifetime gifts are a natural inclination for many clients. There is not talk of repealing the gift tax,
so gift tax planning and optimum utilization of the annual exclusions and lifetime exemption will still be part of
our active practice. We discussed some of the valid tax and non-tax reasons for lifetime gifts last month.
Carry-Over Basis. Congress experimented with carry-over basis in 1976 and repealed it two years later when
its practicalities proved that the whole idea is impractical. Is Congress, in its wisdom, going to bring this
device back? Who knows, but carry-over basis carries its own planning opportunities and burdens. The
present law contains provisions for record keeping and reporting carry-over basis which are strict, if not
onerous. The IRS would face daunting, if not impossible, tasks of auditing basis records, and most probably
the basis would be deemed to be zero, if record keeping requirements are not met.
If carry-over basis is part of the new law, accountants, financial advisors and attorneys will have plenty of
challenges ahead. (In my opinion, Canada has the fairest system. They scrapped their estate taxes a few
years ago, and substituted a "deemed sale" approach. In other words, asset appreciation [capital gain] is
taxed at death. The rate is relatively low and the tax is fairly universal. It is easily applied and avoids the often
heard argument "I already paid tax on that money". This seems like a very fair system to me, but nobody in
Washington has asked my opinion.)
No Fruit Stand. No, estate planners are not going to have to sell apples on the street corner. "Simplification",
the mantra of the folks in Washington, always means more complications, maybe of a different sort.
Furthermore, our elected representatives can’t repeal human nature, and our clients still want to protect and
provide for their families and themselves, in the event of incapacity.
We counsel clients on more than just tax matters and would look forward working with any of your clients who
need experienced counsel. Please contact Jim Modrall at 231-941-9660.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
repealed. Roy Adams, a prominent estate planning attorney from New York had a recent article in Trusts and
Estates entitled "The Sky Is Not Falling". This article argues, admittedly. from a position of self-preservation,
that we estate planners will not be out of work, regardless of the actions taken by Congress in the next few
months.
Some of the points made by Mr. Adams bear repeating here and are borne out by my experience.
Present Law. Under the present estate tax regime, with a $1.5 million exemption for 2005, scheduled to
increase to $2.0 million per person January 1, 2006, many of our clients are not going to be worried about the
federal estate tax (unless, as is extremely unlikely, the exemption pops back to $1.0 million per person in
2011). Elimination of a death tax has not eliminated concern over estate planning among our clients.
Trusts. Trusts are still the avenue of choice for most clients. They want assets protected from creditors or
predators after death. Clients want to control the ultimate disposition of property. The senior generation is
increasingly concerned about the impact of divorce and the lack of retirement savings by their children or
grandchildren. It is also common that there are special needs of some sort, whether they be of some sort of
disability, financial problem or personal problem that favors a trust that will administer property in the event of
death or incapacity.
Second marriages are becoming more common. These bring complexities of separate children and the
tensions that frequently exist between step-parents and step-children, especially after the death of the birth
parent. In my practice, the fact that there is no estate tax does not mean that clients are not interested in
keeping their estate plans up to date, with changes in wealth and family circumstances.
State Taxes. As we pointed out last month, states will be enacting various kinds of death taxes to replace the
revenue lost from federal estate tax repeal. Estate planners will be back where we were twenty years ago,
with a variety of state death taxes that may influence residency, even though family reasons and estate
planning considerations don’t change by moving to the state next door or across the country.
Lifetime Gifts. Lifetime gifts are a natural inclination for many clients. There is not talk of repealing the gift tax,
so gift tax planning and optimum utilization of the annual exclusions and lifetime exemption will still be part of
our active practice. We discussed some of the valid tax and non-tax reasons for lifetime gifts last month.
Carry-Over Basis. Congress experimented with carry-over basis in 1976 and repealed it two years later when
its practicalities proved that the whole idea is impractical. Is Congress, in its wisdom, going to bring this
device back? Who knows, but carry-over basis carries its own planning opportunities and burdens. The
present law contains provisions for record keeping and reporting carry-over basis which are strict, if not
onerous. The IRS would face daunting, if not impossible, tasks of auditing basis records, and most probably
the basis would be deemed to be zero, if record keeping requirements are not met.
If carry-over basis is part of the new law, accountants, financial advisors and attorneys will have plenty of
challenges ahead. (In my opinion, Canada has the fairest system. They scrapped their estate taxes a few
years ago, and substituted a "deemed sale" approach. In other words, asset appreciation [capital gain] is
taxed at death. The rate is relatively low and the tax is fairly universal. It is easily applied and avoids the often
heard argument "I already paid tax on that money". This seems like a very fair system to me, but nobody in
Washington has asked my opinion.)
No Fruit Stand. No, estate planners are not going to have to sell apples on the street corner. "Simplification",
the mantra of the folks in Washington, always means more complications, maybe of a different sort.
Furthermore, our elected representatives can’t repeal human nature, and our clients still want to protect and
provide for their families and themselves, in the event of incapacity.
We counsel clients on more than just tax matters and would look forward working with any of your clients who
need experienced counsel. Please contact Jim Modrall at 231-941-9660.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |
| March 2005 IS ESTATE PLANNING OBSOLETE? by James R. Modrall III, J.D., C.P.A. |