The Estate Tax “Compromise” Bill

There has been a great deal of discussion over the past couple of weeks regarding the Bush Era Tax Cuts, also known as the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”).  While most are focused on the income tax benefits of the bill (as they should be) there are number of estate planning practitioners focused on the estate planning aspects of the bill.

For years now the estate planning community has been speculating on where the estate and gift tax exemption will end up. These discussions have ranged from complete elimination to upwards of a $5 million exemption (some practitioners even suggesting it may be more). As if speculating on where the GST exemption may end up wasn’t enough, Congress provided us with an entire new set of potential rule changes to grapple with; loss of discounts, elimination of short-term GRATs, what to do if my client died in 2010…need I say more. All of this and I still haven’t touched on where the federal estate tax rate may end up.

Now, on the potential eve of this groundbreaking legislation (where have we heard this before), the only thing that seems to be certain is that we get to do all of this over again in two years. As a country, our entitlement programs are created to last a lifetime, but our tax legislation is only good for a specific period of time.

As an insurance based estate planning practitioner I would clearly prefer the estate tax exemption to be as low as possible (this is the dichotomy in my life where my personal and professional feelings collide). Where the dichotomy is eliminated and my personal and professional feelings align is enacting some type of estate tax legislation that is permanent in nature. I use the term permanent loosely. In an estate tax legislation scenario I would define permanent as,”… legislation that allows affluent individuals and families to plan based on a set of rules that will still be in place at their death.” Although this is still broadly defined and open for interpretation I would suggest, alternatively, that permanency be defined as one generation or 20 to 30 years.

Estate tax practitioners have been playing a game based on a rule book they know could change at any time. The result has been complacency and a wait-and-see approach, not only for the advisor community, but for affluent individuals and families. It is my hope the next nine years of estate tax planning is more certain than the last nine years.

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