What to Do About Estate Tax Uncertainty

[hstarn]

The obvious current dilemma for financial planners is the lack of clarity regarding what “the law demands.” Here are the current facts (two of which are subject to change): 1) the federal estate and generation-skipping taxes were repealed at the end of 2009, 2) the gift tax remains at $1 million lifetime, and 3) estate and generation-skipping taxes are scheduled to revert to a $1 million unified credit with a top transfer rate of 55% (unless Congress decides otherwise)

So what do we do as planners when we don’t have that crystal ball? How do we help our clients in the face of uncertainly – not knowing if the unified credit goes back to the $1 million level as tentatively scheduled or if transferred assets receive a step-up or end up with a carry-over basis? My advice is to control what you can and build in enough flexibility (when possible) to adapt for probable change.
What can be controlled are the prudent, estate-planning actions not directly linked to transfer taxation. These include:

Ensure estate planning documents are current (e.g., Will, living directives)
Check beneficiary designations (e.g., insurance contracts, retirement plans)
Review titling of property
Provide for estate liquidity (possibly with life insurance)
Provide for survival needs (possibly with life insurance)
Use of the annual gift-tax exclusion
Life-time gifting (you know the cap is $1 million)
Charitable contributions
Use of trusts (if the intent is professional management of funds)

The worst mistake for the financial planner (in my opinion) is to do nothing. Remember, no decision is a decision; no plan is your plan. Re-focus the client’s attention on the estate planning issues that can be initiated.

Your comments and ideas are appreciated....

[kfincher]

Harry,

This is very useful advice. I particularly like your reminder that "no decision is a decision."

Katherine