People who go around saying they know how to plan for the current hiatus in the estate tax likely have no clue about what to do. It's doubtful that anyone really knows what to do. There are just too many uncertainties. That's important for life insurance agents to keep in mind.
For example, if the estate tax is not reinstated in 2010, then one could proceed accordingly. But, what if it is? And, what if it is made retroactive to the first of the year? What if it is not made retroactive? What if it is made retroactive but the law is challenged in court and the legal proceedings extend for years after 2010?
Those are only a few possibilities.
The uncertainty affects more than just estate planning. What about likely probate issues if the client is an executor of the estate? If a person dies on January 10, 2010, and under the applicable state law the estate can be closed within six months, what is the executor to do? Keep the estate open to see what happens in Congress with the estate tax law? If so, for how long? Questions would arise about whether such a delay would be advisable. The executor would have to decide what course is best, remembering that he or she could be personally liable for taking the wrong route.
What are life insurance advisors to do? That is one of the easier questions to answer. Ever since 2001, advisors have had to deal with changes in the estate tax, and what people thought would happen with it. Would there be an estate tax in 2010 or not? That was always a consideration. Advisors learned how to deal with that.
That has not changed just because, right now, no one knows what will happen, whether anything will in fact happen, and if so, when it will happen.
After boiling it all down, I submit that the current discussion about estate tax uncertainty is much more of a lawyer's issue than an issue for the life insurance advisor. So advisors should recommend to clients that they seek legal counsel to review their particular situations.
Remember, clients may not know what considerations are important, or whether their own situation merits special attention.
Moreover, clients may not reveal all the pertinent facts to the advisor. Instead, they may provide only the information that they think the advisor needs to hear. Obviously, if this occurs, the advisor does not know about the hidden information. Any guidance the advisor may offer may be inappropriate at the least, and plain wrong at the best.
From an agent's perspective, then, if the situation does not involve the sale of more life insurance, making an immediate referral to legal counsel is probably the best and safest route.
On the other hand, if the situation involves the sale of life insurance, then agents are generally in the same situation as they have been since 2001–i.e., no one knows for sure what is going to happen.
Here is one additional thought for advisors to consider. With all the budget deficits expected in the coming years, are members of Congress likely vote for to lower taxes on rich people?
It just does not make sense that they will. If they did, when they come up for re-election, wouldn't their opponents harp on how they lowered taxes on the rich? The appeal of doing away with the so-called "death tax" is great. But the fear of appearing to give a free pass to the rich may be greater.
The estate tax situation is beginning to look more and more like everything else that has been occurring in the marketplace. That is, changes are happening more rapidly than ever before.
It was not long ago when firms could project out for five years. Then, every five years or so, they'd tweak the five-year plans and things would roll on hunky-dory. But, then the five-year plan became a two-year plan, and, lately, the two-year has become a six-month plan.
This change appears to be secular in nature, not situational–i.e., the limitation in planning ahead is due to major changes in the marketplace more than the particular situation that now exists with the economy.
In view of the crush of available information that makes rapid change possible and probable, this is likely to continue.
So, when advising clients about the estate tax, advisors should keep in mind that nothing has really changed; they are not dealing with anything they have not had to deal with since 2001. There is still uncertainty, albeit even more uncertainty than before. And, that's not likely to change in the foreseeable future, if ever.
In any case, life insurance will continue to be a solution that provides security no matter what happens six months from now. That has always been the primary appeal of life insurance for estate planning, and it still is.
Douglas I. Friedman, a partner in the Friedman & Downey, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. His e-mail is doug@fdlawfirm.com.
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