Update: Forecasting the Fate of the Estate Tax

KYEstates readers, thanks for your patience. Yes, post volume has been down. That’s not because the transfer tax world has suddenly become boring – perish the thought. Rather, it’s been an extraordinarily busy month. First, your publisher visited his brother in Brooklyn and then went to his 10th Reunion. That was a little tough, because he discovered that although he’s not the slowest attorney-sculler in the U.S., he’s definitely a lot slower than the U.S. National Team and the attorneys who train with them. Although your publisher roomed in his old dorm with an old friend and income tax lawyer, there weren’t any other transfer tax lawyers around – now that was really tough – 72 hours with no one around who also gets scared when someone says “section 2036”. Lonely….

Upon returning to The 502, unwelcome news broke that a colleague was hospitalized with a severe lung infection, and would need surgery. Covering speaking engagements and pending matters in our colleague’s absence has kept all of us in the estate planning department busier than usual.  After 17 days in the hospital, our colleague is doing a lot better – working from a home office, and actually in the office briefly today, which was welcome, wonderful news.

KYEstates readers who are Kentucky attorneys know, of course, that June is CLE deadline month – another busy factor.  To date in June, your publisher has presented five times at three different seminars (see updates here).  Highlights included coverage of recent developments at the 37th Annual Midwest Estate Tax & Business Planning Institute, and a joint presentation in Louisville with Marc Jackowitz on fiduciary law and socially responsible investing, using BP as a case study (OUCH…).  (For a copy of our presentation, see here and here.)

So, here we are, boats against the current, borne ceaselessly back to the end of the month.  Which means first, thank you again for your patience, and second, let’s review the current state of (in)action on the estate tax!

Hani Sarji, publisher of Future of the Federal Estate Tax, covers an article by Deborah Jacobs in Fortune: “Prepare for the Return of the Estate Tax“.  Along similar lines as our March 12 post, Jacobs predicts that Washington gridlock, the Nation’s fiscal hole, and the political economy of the upcoming midterms may combine to result in no action before a $1 million exemption and 55% marginal rate return in January, 2011. Jacobs provides practical suggestions for people who thought in the past decade that they didn’t need to worry about transfer taxes:

  • Review life insurance policy ownership.
  • Put some assets in your own name.
  • Maximize annual gifts.
  • Fund college savings plans.
  • Pay tuition and medical expenses.
  • Convert to a Roth IRA.

Most of these measures are “no-regrets” even if the exemption ultimately settles at levels well above $1 million.  For instance, creating ILITs and transferring insurance policies to them is a simple, long-standing strategy to avoid splitting insurance policy proceeds with the government, and instead leaving them fully available to provide for heirs.  Gift planning is trickier – the optimal level of annual exclusion gifting and tuition or medical expense payment for persons not yet retired with less than $3 million to $5 million is obviously much different for a $1 million exemption than a $3.5 million exemption.

We’re nearly halfway through the year when estate tax repeal actually happened, and still there is no Congressional action.  Theatre, sometimes, yes, but action – no.  We’ll continue to monitor the situation closely and keep you posted. In the meantime, be advised that although Paul Krugman likes the world to be flat, he likes his transfer taxes to stay progressive.

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