Whither Estate Tax Legislation?

S. 722 will be helped by the fact that Baucus is chairman of the Senate Finance Committee, and that Baucus is working on the bill with the highest-ranking Republican member of the Finance Committee, Sen. Charles Grassley, R-Iowa, Parsazad said.

Baucus and Grassley “work together well,” Parsazad said.

While the outcome of the estate tax debate remains uncertain, “I don’t see us going back to pre-EGTRA days or full repeal,” Parsazad said.

Co-panelist Jonathan Forster, co-managing shareholder at Greenberg Traurig L.L.P., Tysons Corner, Va., warned that policymakers are looking for offsets to the cost of any permanent increase in the estate tax exemption. “The groundswell is, ‘You gotta pay for this,’” he said.

Parsazad agreed. “It looks like people don’t want to change this without finding a way to pay for it.”

Forster talked about strategies advisors can adopt to respond to the uncertainty.

One strategy he suggested is to “be ready for repeal.” The 1-year estate tax repeal in 2010 could take effect if Congress fails to pass reform legislation, he explained. He said planning documents should include provisions that become effective only upon repeal of the estate tax.

But Forster advised against trying to incorporate all contingencies. “You can’t really draft planning documents around multiple contingencies,” he said. “The clients will never understand it.”

Another strategy is to “plan for liquidity,” Forster said. The financial crisis is limiting the access of individuals and estates to liquidity, because they cannot borrow funds or sell assets to raise capital, he explained. In addition, clients could face increased estate tax liability, thus increasing the need for liquidity, if a reversion to pre-EGRRA estate tax law occurs, he cautioned.

Therefore, Forster said, “the need for a guaranteed liquid source of funds, like life insurance, will be greater than ever, and individuals should plan accordingly.”