Wit,Wisdom
& the Fiduciary Professions
Dangerous Postponement Without Cause
Ongoing thoughts about a misinformed public reaction to transfer tax reform
By Ror M. Adams, Chair Editorial Advisory Board
Many of our readers have communicated to us that media accounts and the huge hype associated therewith (not to mention the frequent inaccuracy of the media coverage), have spooked many of their clients and customers into proceeding often with unnecessary estate planning. Readers of media accounts broadcasting to an uninformed public that the estate tax is dead through Congressional repeal are, of course, absolutely incorrect in these statements.
We all know that the bills passed by Congress recently that would have repealed the transfer tax system were vetoed by President Clinton. More importantly, those bills, even if approved by the president, delayed the repeal of the transfer tax system for a lengthy ten-year period, during which, in my opinion, meaningful relief from the transfer taxes for persons dying during that period was provided.
Representative Tanner, in a "Repeal Now" bill introduced in Congress, has proposed a meaningful compromise which, if passed by Congress and accepted by the president, would give proper, meaningful relief, but would not constitute repeal. The rates of the transfer tax system under the Tanner bill would be reduced immediately by 20 percent across the board and the applicable exclusion amount would be increased to $2 million, with a phase-in of even more beneficial measures over time. This favorable recent legislation would still leave in place a most viable and threatening transfer tax system, however, requiring effective estate planning to help taxpayers with significant wealth preserve their property.
Furthermore, the bill repealed by Mr. Clinton would have, even after the transfer taxes disappeared in ten years, merely traded a 55 percent top tax rate for a 20 percent capital gains tax on inherited property for many taxpayers when they inherited property which was later sold. Who is to say that in ten years the capital gains tax rate would be 20 percent or that states would not enact (absent a federal presence in the transfer tax arena), confiscatory state death tax legislation.
In conclusion, get the word out that to delay estate planning is not a responsible act and is more in the category of wishful thinking. Of course, the new president of the United States and the newly elected Congress will wrestle with this issue with some type of reform or repeal no doubt likely.
Nonetheless, the analogy in delaying estate planning would be likened to a person with a serious medical problem delaying treatment because the Food and Drug Administration has indicated that it may approve a drug which will be a better medical treatment than procedures currently available! This is not wise for your health or, in the case of estate tax reform, not wise for your pocketbook.
