From the October 2002 issue of Investment Advisor • Subscribe!

October 1, 2002

Estate Planning: An Oxymoron?

Tax-savvy estate planning these days is easier said than done, thanks to the unclear future of the estate tax itself (President Bush and the House of Representatives--but not the Senate--favor repealing the estate tax, which is scheduled to die in 2010 and be reborn at its current level the following year). Says Tom Orecchio of Greenbaum and Orecchio in Oradell, New Jersey: "Many clients put those decisions on hold until they know how it will shake out." Advisor Curt Weil of Weil Capital Management in Palo Alto, California, notes that some planners are working with attorneys to deal with the problem in fairly creative ways. One method is to place fallback provisions inside the client's estate planning documents. This generally means that the client will have a dual estate plan: one will go into effect assuming that estate tax laws will remain as they are today; the other will contain a provision that should Congress revert to the old estate tax, a different estate plan will be in effect.

At Hartford Life, media relations manager David Potter says that the company is helping clients build "maximum flexibility" into their estate plans by taking these steps: 1) making use of trusts, which allow couples to pay estate taxes with tax-advantaged dollars without losing control of or access to their cash; 2) buying life insurance to preserve wealth while accumulating assets for retirement; 3) taking advantage of permanent life insurance policies with an estate tax repeal rider; the policy provision allows policyholders to surrender a life insurance policy purchased for estate planning or other purposes without surrender charges if the estate tax is permanently repealed in 2011.

As an aside to estate planning, the IRS program manager for the Estate and Gift Tax, Josephine Bonaffini, noted in a September Webcast that only 6% of the 126,000 estate tax returns, and 1% of the 100,000 gift tax returns, filed annually are audited after being reviewed.

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