Certain provisions of the new tax laws signed in June by President Bush must be well known to you now. The effect of these laws is dramatic and comprehensive, and for that reason, your business will never be the same.
The laws touch customers at every level of wealth and with all types of assets. People with existing estate-planning documents are impacted as well as the seven out of 10 Americans (according to the Federal Reserve Board) who do not have wills. Never have your customers needed more accurate information or closer personal and professional contact from you.
Let me raise certain critical considerations, which come up whenever these new laws are topics of conversation.
Estate Tax Exclusion — The amount that may be excluded from federal estate tax (not state death taxes, which will inevitably go higher) will increase from $1 million in 2002 to $3.5 million in 2009.
Estate Tax Repeal — The estate tax and the generation-skipping tax (a special and severe assessment when property is left to grandchildren, grandnieces or grandnephews) are repealed for one year in 2010. However, the whole system of taxation, as we know it today, comes back into existence on Jan. 1, 2011, unless Congress acts and keeps the repeal after 2010.
Gift Taxes — Note, I did not say the gift tax was repealed in 2010, and it is not. It is in effect now and it will be in effect in 2010. The exclusion for gift taxes will be $1 million in 2002, but does not increase through 2009 as the estate tax exclusion does.
Furthermore, the tax rate on assets over the excludable amount goes down, but does not plummet. In 2002, the rate is 50%, and in 2009, it will be 45%. In 2010, the gift tax rate is scheduled to drop to 35%, the highest income tax bracket projected at that time.
The Broker's Role
The message? If customers want to preserve their wealth and you want to be their money manager, estate planning remains essential. This is particularly true after 2005, when the states stop sharing in a portion of the federal estate taxes people pay and higher state taxes are likely.
Besides, there is a lot to do. Dealing with income taxes remains a challenge, as does appointing trustees, executors, guardians and attorneys-in-fact under durable powers of attorney. Living wills, living trusts and a whole host of nontax areas must be addressed if people are to be protected in periods of disability and old age, and want their property passed to heirs at the time and under the circumstances they wish.
Estate administration will not go away. Federal and state income taxation of trusts and estates will not disappear. These issues must remain on your customer's radar screen, but you may have to turn on the switch so your customer can see their importance.
The estate tax has not been repealed in the manner so many erroneously think.
Roy M. Adams is worldwide head of the Trusts and Estates Practice Group at the law firm of Kirkland & Ellis in New York. In addition to his law practice, he lectures extensively on estate planning and has authored several professional texts including “Contemporary Estate Planning: A Definitive Guide to Planning and Practice.”