As 2006 ends, industry experts applaud the year's positive developments, including legislative gains on Capitol Hill, continuing high interest among business owners in non-qualified deferred compensation plans and increases in agent recruitment. But they warn that battles lay ahead. "The Pension Protection Act was a home run for us," says David Woods, president of the National Association of Insurance and Financial Advisors, Falls Church, Va. "Also, the fact that we didn't get estate tax repeal was a big victory."
NAIFA President John Davidson agrees, crediting the legislative wins in part to "seamless" coordination among industry organizations, including the American Council of Life Insurers, the Association for Advanced Life Underwriting, the National Association of Independent Life Brokerage Agencies, NAIFA and others. Aiding NAIFA's lobbying efforts, he adds, was the organization's ability to mount a 1,000-member bus ride to Capitol Hill to lobby senators and representatives on issues of importance to the life insurance community.
"We touched every member of Congress for the first time ever," says Davidson. "That was a monumental achievement."
The NAIFA executives caution, however, that the industry needs to remain vigilant about proposals that could negatively impact insurers, including pay-go rules that would require spending increases or tax cuts be offset and paid for. The danger, they note, is that Congress could eliminate the tax-favored treatment of life insurance to close budgetary gaps.
And, while backing the continuing survival of the estate tax, sources say reform of existing law is needed to permit a more favorable environment in which to do long-term planning. In place of the gradual phase-out of the estate tax through 2009 and its temporary repeal in 2010 before reverting back to 2002 law, as now mandated under the Economic Growth and Tax Relief and Reconciliation Act of 2001, many advisors advocate raising the estate tax exemption to an amount ranging between $3 million and $5 million, thereby removing the estate tax burden for most Americans.
"Frankly, I think we'll see mortalities spike in 2010 among folks who will give up the will to live," says Eric Brotman, a financial planner and principal of Brotman Financial Group, Timonium, Md. "It's preposterous to think that [current estate tax law] is a healthy piece of legislation."
Absent reform, advisors say they're generally avoiding the use of irrevocable trusts in estate tax planning for all but their wealthiest clients. In place of these vehicles, many are recommending disclaimer trusts, which allow trust beneficiaries to redirect their interest in the trust to another party, such as the spouse of the decedent. Similar to a credit shelter trust, the vehicle permits beneficiaries to take advantage of estate tax exemption levels at a time of their choosing.
