Advisors Faced Many Changes In 2001

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Charleston, S.C.

A number of events in the last year have changed the situation dramatically for advisors and their clients, according to speakers here at LIMRA’s Advanced Sales conference.

“And what a year it has been,” said Dianne Ritz, chair of LIMRA’s advanced sales committee. Ritz referred to 3 major events in the world of advanced markets: the new tax law, the new minimum distribution rules, and split dollar being “turned inside out.”

Tom Commito, vice president business and industry development for Lincoln Life, said, “The biggest problem with the tax act is that it really does a total injustice with respect to planning.”

The last several years have been full of certainty, he said. “Now were talking about total uncertainty. In times of uncertainty, life insurance is the foundation of providing certainty.”

Changing exemptions and the sunset provision for estate tax repeal have forced people to look for flexibility in their planning. “The good part of that is it offers options,” he said. “The bad part is it has taken all the control of planning away from the decedent.”

Some of the changes in the tax law include estate tax reform and modified capital gains treatment. “Life insurance avoids both,” he continued. “Life insurance always has a 100% step up in basis.”

When addressing the total elimination of estate taxes, Commito said, “Even if we have no taxes, the only downside to life insurance is youre going to make your family a little more wealthy.”

One problem that has been created by the new tax law involves increased exemptions. While an increased exemption may not seem like a problem, Commito contended that due to the common practice of credit shelter trust planning, there is a problem.

“In essence, we have disinherited the spouse, who may not have any discretionary assets to live on,” he explained.

Commito said that in many cases, the exemption is going to take up most of the estate. “Make sure youve got enough life insurance for your spouse to live on,” he said.

Commito also covered some of the positive elements found in the tax act. “The good news with the tax act is qualified plans and IRAs.”

He noted that increased deduction amounts and contribution limits have made profit-sharing plans more attractive. “You can now make in-service distributions.

Another big event in the past year was the changes made to the minimum distribution rules for IRAs and qualified plans.

“The new rules are much more simplified and easier to understand,” said Mark Smith, a partner at Virchow, Krause & Company, LLP.

“People in the field are seeing large IRAs,” said Smith. “The large IRA is a heavily taxed asset. Your clients family will only take 20-25% of that home with them.”

Smith said that under the new regulations, there is a lot of opportunity for stretch distribution planning with these large IRA accounts.

The new minimum distribution table will provide clients with a smaller required minimum distribution than previously allowed, he said.