As the U.S. economy teeters on the edge of a recession, advisors who cater to the affluent might rightfully question whether their clients’ estate plans–and the fortitude these clients will need to keep their plans current–will be able to withstand the financial shock. The short answer: It depends on the individual’s net worth and on how narrowly focused the estate planning objectives are.

For most affluent individuals–those with $10 million or more in investable assets–the financial developments of recent months have had at most a marginal impact on estate plans and interest in planning generally. Irrespective of the forces buffeting the markets, experts tell National Underwriter, the high net worth will need to tend to their legacies for both tax and non-tax reasons.

If, as is widely expected, Congress enacts legislation freezing the lifetime exemption and top tax rate at or near the amount slated to take effect next year under the 2001 Economic Growth Tax Relief Reconciliation Act of 2001–$3.5 million and 45%, respectively–then individuals holding assets above the lifetime cap (or, in the case of spouses, above $7 million) can expect a tax hit.

And, sources emphasize, estate planning will remain de rigueur for all the popular non-tax benefits: the ability to pass on assets at the desired time, free of costly and time-consuming probate court proceedings; to protect one’s family while carefully calibrating the financial needs and interests of a spouse, children or other beneficiaries; and to establish a lasting legacy by contributing to charity.

“The high net worth typically are not subject to the vicissitudes of the market,” says Janice Forgays, a vice president of advanced markets at Sun Life Financial, Wellesley Hills, Mass. “They tend to be more recession-proof. They realize they have estate planning needs and are committed to staying the course.”

Rick Blaser, an advanced sales consultant for Hartford Financial, Hartford, agrees. “Regardless of the political, tax and economic environments, highly affluent clients can expect to pay an estate tax. So they’re very much active in planning mode.”

Less active are those on “the estate planning line:” individuals whose net worth hovers around the current lifetime exemption of $2 million. Uncertainty as to the final disposition of the estate tax, observers say, is prompting some clients to hold back on planning. But sources also point to depressed economic indicators as a factor contributing to reduced planning among individuals who are chiefly focused on tax-avoidance. Clients who stood to pay an estate tax in 2007 could now be below the lifetime exemption limit because of substantial declines in their investment and real estate holdings.

“People are less likely to do estate planning if they’ve been at or below the lifetime exemption limit, and are now significantly below the limit,” says Jim Tyrpak, a chartered financial consultant and president of the Society of Financial Service Professionals, Newtown Square, Pa. “Some folks, because of tax considerations, are saying ‘the estate tax doesn’t impact me, so I won’t deal with it.’ Others are lengthening the process for both tax and non-tax reasons.”

Tyrpak is not alone in this view. A Phoenix Wealth Survey released in May 2008 reports that about 22% of the high net worth market has delayed estate planning. For individuals worth $3 million or more, that figure rose to 42%. Another 42% of respondents say they have an estate plan, a percentage that’s remained generally flat in recent years.

The various economic factors that may be discouraging tax-oriented clients from doing estate planning can, paradoxically, be strong motivators among those who take a broader view about the benefits of planning. Tyrpak observes that clients who have experienced significant losses in real estate and equity markets are actually more likely to pursue planning to replace assets that have diminished in value.

Enter life insurance. Advisors say many of the high net worth are buying large policies to fund an irrevocable life insurance (or wealth replacement) trust to offset losses resulting from the current downturn, thereby assuring the financial futures of estate plan beneficiaries. Many are also turning to insurance to safeguard assets from creditors, protection that is assured under many state statutes.

In a contracting economy, observers say, life insurance is also viewed favorably among the affluent because of the product’s superior cost/benefit performance relative to investments that are suffering below-average market returns, such as stocks, mutual funds and exchange-traded funds.

“When showing a client the benefits of using insurance in an estate plan, much of the time they want to know whether the insurance is a good deal,” says Blaser. “The internal rate of return of a guaranteed universal life policy, as measured by the ratio of the premiums paid to the death benefit at life expectancy, is very attractive in today’s interest rate and investment environment. Typically, it’s as high as 6%.”

Also appealing in today’s low interest rate environment, sources say, are other life insurance-funded vehicles, such as grantor-retained annuity trusts and testamentary charitable lead trusts. With a GRAT, the grantor transfers appreciating or income-producing property to the trust in exchange for a fixed annuity for a period of years. When the term of the trust ends, the remaining balance in the GRAT is transferred to the remaining beneficiaries.

A CLT, by contrast, pays an income stream to a designated charity. At the close of the trust period, the remaining trust property returns to the grantor or to other non-charitable beneficiaries. A key benefit is the ability to “zero out” the estate tax.

Sources note, however, there is greater demand for the interest-sensitive CLT than for other charitable planning vehicles, most notably the charitable remainder trust, which operates in reverse fashion (providing an income stream to the grantor or beneficiaries and a remaining interest to a charity.) Blaser says the CRT, a vehicle well suited to deferring capital gains tax on highly appreciated assets, is garnering less traction than in years past, in part because of the currently low long-term capital gains rate (15%).

Another reason: Many of these “highly appreciated assets”–summer villas, artworks, stock options and the like–no longer hold the high values they did in recent years. And so many of the high net worth, fearing either for their retirement or for the family legacy, are feeling less charitably inclined.

“Most affluent clients who give to charity do so for emotional reasons, rather than tax reasons,” says Tyrpak. “But if their portfolios are dramatically affected, the levels at which they’re willing to contribute to charity is somewhat reduced.”

Also diminished is their desire for aggressive planning. Family limited partnerships, off-shore trusts, private annuities and 419(e) welfare benefit trusts are falling out of favor. Sources say that is in large measure due to heightened IRS and judicial scrutiny of these vehicles, which have been the focus of much-publicized abuses in recent years.

To protect their assets, many of the high net worth are also giving their portfolios a more conservative tilt. Wilma Anderson, a principal of Senior Care Associates, Littleton, Colo., says her clients are increasingly asking about policy guarantees, such as secondary guarantees on UL products, to secure their invested principal or the death benefit; and, in the case of long-term care riders on such products, to help assure that their nest eggs remain intact.

“The question I now get most often is, ‘Will I have enough money to last my lifetime,’” says Anderson. “Perhaps 2 to 3 clients per week call to ask about this, which is unusual. In my 18 years in this business, I’ve never had so many people call with this concern.”

Adds Bob Graham, an advisor and CEO Scottsdale, Ariz.-based RG Capital: “Our business is up significantly from last year because of the [economic] uncertainty. People are much more concerned about their portfolios and want advice. I now get between 5 and 10 referrals per week from people looking for help.”