Wealth transfer planning among the high net worth is likely to increase in 2011. A host of factors, including low interest rates and asset valuations, the improving economy and, not least, pending legislation impacting income and estate tax rates, will fuel the surge, sources tell National Underwriter.
"The new tax package will be wonderful for advisors," says Debra Repya, the senior director of advanced markets at Allianz Life Insurance Co., Minneapolis. "The legislation, an improving economy, low interest rates and the growing population of boomers turning 65–all these things point to renewed interest in retirement, estate and business planning."
Adds Michael Ricke, a principal of Protecting and Preserving Wealth, New Albany, Ind.: "The tax bill will provide a foundation I can work with. We'll have two years worth of rules, and you need to know what the rules are to play the game."
The $858 billion tax bill, which at press time the Senate had passed and was due for a House vote, extends unemployment benefits for 13 months, cuts payroll taxes 2% and extends current income and investment tax rates for all income brackets. Most significantly for advisors, the package raises the estate tax exemption amount to $5 million for individuals and $10 million for couples; and it reduces the top estate tax rate to 35% from 55% on estates exceeding the exemption amounts.
The bill will thus provide a much-needed boost to an advanced planning arena that advisors found wanting in 2010. An anemic economic recovery following the 2007-2009 recession and uncertainty as to Congressional action on the estate tax conspired to suppress interest in planning and, among those with pre-existing plans, to slow or halt their funding last year.
Ricke, a 28-year industry veteran, says that many of his clients in 2010 were "paralyzed" by doubt as to the economic and legislative landscape. Todd Heckman, a principal of Estate Planning Advisors, Vero Beach, Fla., adds the dismal environment cut his business considerably: At year-end, he was finalizing only his 3rd estate planning case–down from the 8 to 12 cases he regularly completed in prior years.
While contributing to an improving market for advanced planning, the tax bill is nonetheless seen as a mixed bag by some experts. Like the Bush-era tax law it replaces, the legislation comes with an expiration date: December 31, 2012.
That time limit, says Rick Scruggs, a MassMutual adviser and principal of Financial Designs, Lynchburg, Va., may "frustrate" advisors and clients looking to do long-term planning. Bill Seawell, a senior vice president of GA and ABGA distribution at Lincoln Financial Group, Philadelphia, expects also a "significant reduction" in qualified prospects for wealth transfer planning and irrevocable life insurance trusts because of the high exemption levels.
Caveats aside, market-watchers say certain techniques will thrive in 2011, due in large measure to continuing low interest rates and asset valuations (such as on securities and real estate). These factors reduce estate and gift tax exposure, allowing clients to pass more appreciating assets to beneficiaries without taking a tax hit. Among the promising strategies: grantor retained annuity trusts, charitable lead annuity trusts and intentionally defective grantor trusts.
