The Financial Scene: Estate Planning

   The repeal of the estate tax for 2010 has left many people scratching their heads, uncertain about the status of their wills. “It’s a bizarre year that has many people abuzz,” says Moneta Group principal David Breckenridge. He explains that The Economic Growth and Tax Relief Reconciliation Act of 2001, enacted under President George W. Bush, was passed with a gradual increase in the exemption amount in the estate tax, with a provision that in 2010, it would go away. “Everyone thought that it would be dealt with prior to Jan. 2010, but to everyone’s surprise and shock, it didn’t happen. For the first time since 1916, there’s no estate tax,” he says, adding that there’s a general consensus that Congress will enact legislation that will be retroactive to Jan. 2010. “Of course, whether its constitutionality will pass muster is a big topic for lawyers. I have no doubt it will be challenged.” 

    The estate tax is scheduled to resume in 2011, at rates similar to what they were before. But until then, there is understandably plenty of concern. Guy Hockerman, vp/senior financial planner for Commerce Trust, says many of his clients are asking, What do I do now? “In light of changes that appear to be temporary, our clients are worried about making sure they’re prepared for either scenario,” he says. “We’ll probably get some new legislation that will make things retroactive, but it’s not a guarantee.”

    Hockerman says it’s important not to make radical changes. “Because we’re in a waiting game, it’s difficult to go forward with a lot of conviction right now,” he says. But as with any type of financial planning, he says the more current the documents are, the better.

    “We’re encouraging our clients to revisit their documents in light of the present law. It’s a good idea to meet with their advisers and estate attorney to see if there are any major holes that need to be addressed,” he says. “The challenge when it comes to estate planning is that people tend to not have a handle on what they have. We want to make sure our clients are aware of the ramifications of what they own, and what’s going to happen when they die.”

    Breckenridge agrees, saying estate planning is a continuous process. “The trick is to make sure everything is up-to-date,” he advises. “Usually estate planning attorneys operate as if a person will die the next day. But in this circumstance—with so much uncertainty—it’s difficult to do that.”

    He adds that there are a number of other ramifications, including the generation-skipping transfer tax on gifts to grandchildren, which was also repealed this year, and charitable giving. “For some people, the motivation for gifts was, in part, to save taxes,” Breckenridge notes. “So nonprofits and charities might be concerned that the situation—the fact that there’s no estate tax—could affect the decedent’s desire to give to charity.”

    With everything up in the air about the estate tax, including when Congress will act and if the legislation will be retroactive, the anxiety is palpable, says Breckenridge. “Given the uncertainty of this issue, it’s a great time to pull out your documents and have them reviewed to make sure that what you intend to happen, happens.”