Industry Told It Needs To Make
Better Case For Estate Tax Reform
The life insurance industry needs to make a more effective case in favor of reform, as opposed to repeal, of the estate tax, a top political consultant says.
The industry and other advocates of reform must take their case to the public in a way that makes supporting reform a political asset for candidates rather than a disadvantage, says Steve Ricchetti, president of Ricchetti Inc.
Ricchetti, who spoke during a tax panel discussion at the annual meeting of the Association for Advanced Life Underwriting last month, recently was retained by AALU to help in the estate tax reform campaign.
The supporters of repeal, he says, developed “a well-organized, effective political campaign to convince people that a broader set of interests are attached to repeal than actually exists.”
John J. Kelliher, vice president of Timmons & Co., and a counsel to the American Council of Life Insurers, says there does appear to be a growing thought in the House of Representatives that the repeal movement has run its course politically.
This is due not only to the budget situation, he says, but to the fact that constituents do not like the uncertainty contained in the present law.
But it is difficult, Kelliher says, for members of Congress who strongly supported repeal to come off that position radically and instead support reform.
While it is possible for reform to be enacted this year, he says, the issue may be more ripe in the next Congress, particularly as the year 2010, when the legislation sunsets, approaches.
Although estate tax reform was identified as AALUs top legislative priority, Gerald H. Sherman, an attorney with Silverstein & Mullens and AALUs longtime counsel, says an issue emerging in several states could raise serious difficulties for the life insurance industry.
This involves an effort to alter state insurable interest laws in ways that allow investments in life insurance by those who appear to have no relationship to an insured, he says.
In this type of complicated transaction, Sherman says, it appears that the insureds are relatively healthy older persons who have not used up all their insurability.
Sources tell National Underwriter that frequently the attempts to change insurable interest laws involve a broad expansion of charitable insurable interest laws and often a charity receives a modest portion of life insurance proceeds.
Other times, sources say, the insureds family receives a modest amount of the death benefits.
Sherman says the bulk of benefits are paid to unrelated third-party investors. Frequently, the life insurance premiums are financed through the purchase of a single premium annuity, he says.
The concept of insurable interest, Sherman adds, is predicated on the notion that those who have an insurable interest benefit from the life of the insured. It is not difficult to imagine, he says, how these transactions will be portrayed in the press and the predictable impact these stories will have on Capitol Hill.
There could be tremendous pressure on the industry to maintain the tax treatment of life insurance, he says, and “we will be in a lot of trouble.”
Ken Kies, managing director of the federal policy group of Clark Consulting, adds that any legislation that results from these articles will be broader than is necessary to curb the abuse.
Turning to the issue of corporate-owned life insurance, Kies says AALU is working hard to have a COLI provision recently developed by the Senate Finance Committee included in any tax bill that moves in this Congress.
There are a lot of reasons to try and get this done this year, Kies says, not the least of which is the budget. The budget environment, he adds, will be more intense next year.
Kies notes that there are many questions about whether there will be a tax bill this year, particularly given that Congress will have an abbreviated schedule in this election year.
However, he adds, there are a lot of pressing issues facing Congress, including expiring tax provisions and the need to address issues raised by a recent World Trade Organization decision.
Kies says he believes there is at least a 50% chance there will be a tax bill this year.
Reproduced from National Underwriter Edition, May 14, 2004. Copyright 2004 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.