After EGTRRA, Clients With Trusts Need Revisiting
Planners and advisors are using the tax bill passed last year as their calling card to revisit clients with trusts and financial plans already in place. Their first job, these advisors are finding, is educating clients about what the law does and does not do.
“There’s tremendous misinformation, or lack of knowledge of the new tax law,” says Gary Flotron, CLU, ChFC, AEP, a principal at G.L. Flotron and Associates, St. Louis, Mo.
“Everybody seems to think it really did the full repeal of estate taxes, and when you explain the sunset provision, they’re all shocked,” he says.
Most planners agree that the public has a misperception of estate tax repeal as an end to estate tax planning. The fact is, these planners agree, the changes made under the Economic Growth and Tax Relief Reconciliation Act of 2001 require updates to existing financial plans, and more flexibility in new plans.
“We suggest they revisit their wills and go visit their attorney to make sure they make all the necessary corrections,” Flotron says.
The trust planning that was in place prior to EGTRRA may no longer be appropriate for someone’s estate, says John Oliver, CLU, ChFC, vice president of strategic marketing services for Transamerica Occidental Life, Los Angeles, Cal.
“Go back and visit with clients, see how much you want to leave in that credit shelter trust at the first death,” he says.
Most credit shelter trusts use a calculation based on the current available exclusion amount, says Oliver.
“You may be leaving more in the bypass than you really wanted to,” he says.
Gary Rathbun agrees. “There’s no question, everybody who has done estate planning has to revisit their trust documents.”
Rathbun, who is president of Private Wealth Consultants, Toledo, Ohio, feels that even though the changes have a bigger impact on clients with smaller estates (less than $2 million), it is a good idea to continuously review an estate plan.
“If the estate laws stayed static, every 2 or 3 years you’d have to revisit your documents anyway, because your life doesn’t stay static,” says Rathbun.
“It’s just prudent to revisit all your documents anyway; this has given us all an opportunity as advisors to initiate that revisiting,” he says.
Bill Buxbaum, AEP, CLU, ChFC, a partner and estate planning specialist with Bay Financial Associates, LLC., Waltham, Mass., explains the situation with older estate plans. “If someone had a $1.5 million estate with a typical A-B trust, before the $1 million exemption we had a $600,000 exemption, so a $1.5 million client dies and $600,000 goes into the bypass trust and $900,000 goes to the spouse. Now with a $1 million exemption, if you’re not careful, $1 million goes to the bypass trust and only $500,000 goes outright to the spouse.”
Buxbaum explains that on a $1 million estate, failure to make this change could totally disinherit the spouse.
When working with clients with estates of this size, planners may want to revisit the original estate plan to see if it even makes sense to have a lot of complex trust planning, says Flotron.
“How sophisticated of a plan do we really need now?” he asks.