H.R. 1836: Uncertainty About 2011 Rules Should Support Demand For Continued Planning
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Uncertainty about what will happen 10 years from now with the estate tax means there are plenty of planning opportunities for agents and advisors, industry sources say.
The recently signed tax bill phases out the estate tax over the next 10 years, simultaneously increasing the unified credit amount while decreasing the maximum estate tax rate. Ultimately, repeal occurs in 2010.
However, the final section of the bill includes a "Sunset Provision" which results in a reversion back to the current tax law–a unified credit amount of $1 million and a maximum estate tax rate of 55%. Unless there is legislation to extend the repeal, this reversion will take place Jan. 1, 2011.
"It's as if there has not been a repeal, as far as estate planning is concerned," says Peter Weinbaum, vice president of advanced business and estate planning at National Life of Vermont, Montpelier.
Estate tax repeal initially threatened the life insurance industry, with anticipated surrenders and lost estate-planning opportunities. Yet, the uncertainty of the new law now gives planners the opportunity to educate their clients and advise them of their options. "Once it's understood, I don't see anything in the tax law that will hurt life insurance sales. Its a communication issue," says Weinbaum.
During the early years of the phase-in, estate tax relief is relatively insignificant– merely keeping pace with inflation. Mark West, director-advanced markets of the Principal Financial Group, notes that "because of the growth of estate assets, the tax due will not change much over the next few years."
In the event that the repeal is continued beyond Jan. 1, 2011, the next question is "what will the states do?" says West. "Many states receive revenue based on the federal tax. States are losing revenue," he adds, citing the possibility of a new state death tax independent of the federal estate tax to offset the loss.
"Because of the complexity of the tax law, it's going to create opportunities for planners to work with clients and show them ways to maximize and achieve their objectives," says West.
Some industry analysts feel that companies operating in the estate planning market will lose about a third of their estate-tax-oriented business, resulting in a 5-10% drop in revenues due to the new tax law. This, however, would take place over the next few years and the overall impact on companies will be insignificant.
