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Financial Planning > Trusts and Estates > Estate Planning

Lehman Predicts EGTRA Will Cut Estate Planning Insurance Revenue By One-Third

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NU Online News Service, June 8, 11:15 a.m. – Lehman Brothers Inc., has published a research report suggesting that the new federal tax law could cut revenue from the sale of estate planning products by roughly one-third.

But the slowdown in estate planning insurance sales should have only a minor effect on the overall performance of large, diversified U.S. life insurers, Lehman analysts predict.

The new Economic Growth and Tax Relief Act is supposed to phase out estate taxes by 2010. Although heirs would still have to pay capital gains taxes on large amounts of inherited wealth, the capital gains tax rate would be much lower than the current estate tax rate, the Lehman analysts write.

Congress complicated matters by including a provision that would bring the current high estate tax rate back in 2011.

The analysts have tried using “decision tree charts” to analyze the effects of the estate tax uncertainty on various types of consumers.

The Lehman analysts estimate that roughly 15% of younger consumers and 20% of older customers who expect to live till 2011 will keep their current estate-protecting insurance arrangements, on the assumption that the current estate tax rate will come back to life.

But older consumers who expect to die by 2011 may cut their estate planning insurance by as much as 50%, and at least three-quarters of the consumers who expect to live past 2011 will probably cut their insurance by an average of about one-third or more, on the assumption that Congress will either renew the elimination of the estate tax or bring back a modest estate tax.

“Our bottom line is that, with respect to that portion of [insurers'] business that is estate-tax oriented, the companies could be affected in a big way,” the analysts write. “Our best sense, based on our decision-tree analysis, is that one-third of this business?both new policies and existing policies?will go away over the next year.”

But estate planning products account for less than 20% of the revenue at the life insurers Lehman follows, so the shift should cut those insurers’ total revenue less than 7%, the analysts conclude.


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