The future of federal estate taxes is uncertain. The $2 million current estate tax exemption is scheduled to increase in 2009, supernova in 2010, and finally collapse back to the $1 million level in 2011.
Few experts believe that Congress and the president will allow the temporary repeal to happen, much less that the disappearance of federal estate taxes might be made permanent. Due to that uncertainty, many advisors have curtailed their marketing efforts toward estate planning prospects. Life carriers, too, seem less interested in products and marketing campaigns directed at those with estate planning problems.
Abandoning the estate planning market now is a mistake
Even in the unlikely event federal estate taxes disappear, people with wealth will still have problems that need to be solved. For example, many want to be sure all heirs are treated fairly in the event of death. Others will make taking care of a surviving spouse the priority. These objectives, which aren’t directly related to estate taxes, can be met or enhanced through the use of life insurance.
The federal government will likely address the estate tax situation in the next 18 months. Most predict a compromise resulting in a semi-permanent solution, with an exemption in the $3 to $4 million range, and a tax rate of 40%-50%.
When the compromise is reached, federal estate taxes will be back in the headlines. There will be no better time to capitalize on the publicity. If marketing efforts are deferred until then, the best part of the opportunity may be missed.
What should be done now?
Producers should be contacting their affluent clients and engaging in an estate planning dialogue. Those prospects who need non-tax help should get it today.
Married clients who have wealth of $6 million or more–and single clients with $3 million or more of wealth–certainly need to think about estate taxes. They may not want to commit to an inflexible plan to manage the uncertain federal tax liability. Sensible strategies that preserve estate tax management options may be the best choices for them.
We have seen plenty of cases over the past several years where the IRS has tried to fight family limited partnership (FLP) and similar limited liability company (LLC) planning. The service has had some success attacking FLPs. Among the IRS’s claims:
? Gift discounts taken for limited partnership interests are too large.
? The FLP and the organizer’s minority gifts should be ignored for estate tax purposes due to the structure or administration of the FLP.
So why advocate FLPs now?