Placer Estate Planning Blog

When I was in law school, I interviewed for a job with a Washington DC tax attorney. Congress had just overhauled the tax code, and I asked how the changes had affected his practice. What started as a job interview turned into a 20 minute rant against Congress. The erstwhile sedate tax lawyer spoke with such vehemence that I thought he might have a nervous breakdown right there in the interview.

The attorney later recommended me for the job, which was strange since I had hardly gotten a word in during the interview. He must have felt better after venting.

Now I sympathize. The future of the estate tax has been uncertain for the past ten years, so that sometimes I feel like Congress is driving me crazy too. Of course, it also takes a toll on clients, who want to make plans but can’t, because the current compromise estate tax bill will expire at the end of 2012.

Philip Moeller in today’s US News and World Report describes this phenomenon as “volatility fatigue.”

‘I think a lot of my investment clients are coming into my office feeling kind of exhausted,’ says financial planner Mark Boddy in Richmond, Va. ‘Every day, there seems to be a 1 or 2 percent gain or decrease in their investment portfolio.’

‘Long-term, what’s been challenging has just been the uncertainty of how their estates will be taxed,’ he says. ‘More than anything, I think people just want some clarity about what those long-term rules are going to be.’

At the end of 2010, Congress approved a two-year makeover of estate taxes. It sharply increased the tax-free amounts that people can either pass on in their wills or give away as gifts —to $5 million for an individual and $10 million for a married couple. In 2013, this exemption would fall to $1 million and the tax rates on larger estate values would increase to 55 percent from today’s 35 percent.

Even before then, some estate attorneys expect Congress to cut these exemptions as part of a deficit-reduction plan. ‘If the [Congressional] supercommittee can get anything done,’ says estate attorney Susan L. King, ‘there’s a chance that they would reduce those deductions, effective the first of next year.’

King, who works near Syracuse, N.Y., and practices in several states, thinks it’s unlikely that Congress would be able to move that quickly, but says some estate advisers are telling clients not to risk losing the exemption. ‘The big [estate] practices are using it as a push and urging clients to do their gifting now,’ she says. ‘It is giving those in the wealthy bracket a little bit of an impetus to say, “Well, maybe we should do it this year.”’

Read the rest of the article at US News and World Report.

photo credit: Franco Folini