Close Close

Financial Planning > Trusts and Estates > Estate Planning

Keep On Offering Estate Tax Riders

Your article was successfully shared with the contacts you provided.


In June, the stage was set for a showdown on repeal of the estate tax. Senate Democrats defeated President Bushs call for permanent repeal and the president and the Republicans vowed to fight for it.

It appears to be a battle that will continue to rage at least over the next several months, possibly the next several years.

Meanwhile, high net-worth consumers across the country may still be uncertain about their own estate planning efforts. Is it best for your clients to wait and gamble that the estate tax will disappear permanently in 2010?

The question has bearing on whether you should continue to offer estate tax riders with the life insurance plans you offer to clients. I think you should. Lets look at the issues.

Personal estate tax planning should not, I believe, be kept on hold while those in Washington debate the merits of keeping it or eliminating it now or in the future. The premise behind estate planning is that consumers are taking control of their finances and planning for the future.

In view of that, you should be advising your clients to keep that control, no matter what the legislators are debating. They cant put their personal finances on hold until a decision is reached.

Besides, even when these issues are decided, estate plans will still be an important way to meet wealth transfer needs.

Consumer uncertainty about this issue isnt new. When President Bush first started talking about this in 2001, it generated uncertainty. Insurance companies saw a downturn in the number of second-to-die coverage plans they wrote during the first quarter of that year. Customers were reluctant to make estate planning decisions, it appears, especially in light of the possibility that the estate tax might go away entirely.

Interestingly, that reluctance was highest at the lower end of the estate planning market–estates of $1 million to $5 million. At the higher end, estates of $5 million to $10 million or more, consumers recognized that they would need estate planning anyway, so there was little drop off in consumer demand for second-to-die products.

Once the Economic Growth and Tax Relief Reconciliation Act of 2001 became effective in June 2001, interest picked up again. When EGTRRA passed, the market for estate tax coverage returned. For the second half of 2001, for instance, survivorship sales at many companies, including those at Lincoln Life, increased.

The bottom line is your clients should do their own planning and not leave it up to Congress. That means looking for a second-to-die policy that has an estate tax rider.

Such a rider will provide a safety net to ease clients concerns over the tax legislation. The rider should give clients the option to surrender their universal life and variable universal life insurance contracts, without incurring surrender charges, if the repeal of the federal estate tax is extended.

By offering a policy with such a rider, you will give your clients the ability to move forward with their estate planning, no matter what the upcoming changes in the tax code bring.

Estate tax riders give your clients the ability to exit the policy, without penalty, if the repeal of estate taxes is extended or made permanent and they feel they no longer need for coverage. The need for estate planning continues to be very strong, so such a rider is important.

The legislative issues are complicated, so the industry can expect a continuing element of uncertainty. None of your clients should put their plans on hold. Delaying those plans can put transfer wishes at risk if the unexpected happens.

Continue to work with your clients to insure the maximum protection with a degree of flexibility as the environment changes. Above all, dont wait and gamble with your clients life expectancies.

is chief product officer for Lincoln Life, a Hartford, Conn. subsidiary of Lincoln Financial Group, the marketing name of Lincoln National Corporation. His e-mail is [email protected]

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 2, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.