Peril to Planners

Estate taxes may be the bane of wealthy families, but they are a boon for wealth managers because clients need their help with trusts, gifts and investment vehicles that minimize the impact of estate taxes. So the Bush Administration's proposal to make the repeal of the federal tax permanent it is now scheduled to phase out in 2010 and reappear in 2011 scares the heck out of many advisors and planners.

Estate taxes may be the bane of wealthy families, but they are a boon for wealth managers — because clients need their help with trusts, gifts and investment vehicles that minimize the impact of estate taxes.

So the Bush Administration's proposal to make the repeal of the federal tax permanent — it is now scheduled to phase out in 2010 and reappear in 2011 — scares the heck out of many advisors and planners.

Not to worry, say estate attorneys. According to practitioners, the administration's plans for a permanent repeal of estate taxes might actually increase the workload of estate planners and wealth management professionals.

Further, many pros figure that permanent repeal is not likely because the government can't really afford it. These advisors are betting that an estate tax with a higher exclusion (as much as $10 million for a couple) and lower rates (maybe around 40 percent) will emerge.

More importantly, even if President Bush were to succeed in getting the repeal passed and then in getting some kind of simplified “flat tax” for federal income taxes, high-net-worth clients would still pay advisors to plan wills and for wealth preservation and transfer.

“It's not as bad as we think it is,” says Randall Cole of Lincoln Financial Advisors in Cherry Hill, N.J., “People will still want their money to go somewhere. The trick is to stay on top of things.”

They predict estate tax repeal would only entangle clients in new webs of tax codes, accounting rules and reporting requirements. History has shown that when Congress passes “simple” tax legislation, it creates huge demand for legal, tax and investing advice as the IRS tries to create regulations to implement the new laws. It takes many years of challenges and cases to make these rules clear.

“The uncertainty principal always wins,” says Donald Kelley of Kelley Scritsmier & Byrne, in North Platte, Neb. “Every time they attempt to simplify something, it usually ends with more complexity.” He points out that “state decoupling,” which involves new state estate tax rules not based on current federal law, already has created more confusion than before.

Douglas Stein, an estate-planning lawyer at Barris Sott Denn & Driker in Detroit, sees little chance of any radical tax simplification schemes. Making all the 2001 Bush tax cuts permanent would cost an estimated $2 trillion over the next 10 years. “The country's deficits are too huge for a permanent repeal,” he says. “Reduced rates and maybe a unified credit of $3.5 million for single people and $7 million for couples will make more sense.”

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