InsuranceNewsNet Magazine February 2011 : Page 19
IS ESTATE PLANNING DEAD? | FEATURE Among other things, that law gradu-ally increased the exemption thresh-old (called the applicable exclusion amount) from $675,000 for individ-uals in 2001 to $3.5 million in 2009, but then ended altogether in 2010. The threshold for couples was (and still is) double the individual thresh-old. EGTRRA also lowered the tax rates for estates above the threshold, from 55 percent in 2001 to 45 percent between 2007 and 2009 and zero per-cent in 2010. Alarmists would have been happy if the estate tax exemption had dropped back down to pre-2001 levels, as was set to occur in 2011. But the 2010 Tax Relief Act has put the kibosh on that, so now advisors are wondering whether all the dire predictions will prove true. have been subject to estate taxes in 2009 when the individual exemption was lower than now (it was $3.5 mil-lion) and the tax rate was higher than today’s (it was 45 percent). That was “a very narrow sliver of the population,” he says, and yet estate planning was going on all the same. Yet another overlooked factor is that most of today’s advisors have practices that are quite varied. Very few work only on estate-tax planning and only with life insurance, says Brad Elman, owner of Elman Insurance Services, Los Altos, Calif. “That alone will minimize the impact of the law on out that even if clients qualify for the new $5 million individual exemp-tion, they will still need to plan for asset transfer and settlement costs at time of death. These costs can include expenses associated with transfer-ring property to heirs, state inheri-tance taxes on the estate, probate and administrative costs for closing the estate, and payment to creditors (such as for real estate taxes, funeral, last expenses, unreimbursed medical costs, etc.). If the client owns a business, plans must still be made to transfer the busi-ness to someone else in the event of Not the End of the World “There has been a lot of whining about the high threshold,” says Thomas Brueckner, owner of Senior Finan-cial Resources Inc., Nashua, N.H. But he thinks advisors who feel that way should “grow a spine, and be an imag-inative entrepreneur.” Yes, he says, there will be fewer estate tax problems to solve, so the market for using life insurance as an estate-tax planning solution will be smaller. “But there are lots of other playgrounds in the city,” Brueckner stresses. “We’re not even scratching the surface” of other uses for life insur-ance in estate planning. National Association of Insurance and Financial Advisors (NAIFA) Pres-ident Terry Headley points out a key distinction. For the $2 million-$5 million market, there will be plenty of planning opportunities under the “larger umbrella of general estate plan-ning,” even though estate tax planning may decline. This distinction is often lost in the general discussion about the impact of the new estate law, several experts say. Also overlooked is past experience. For instance, Headley says that only 0.4 percent of the population would “The New Estate Tax Law is not the death knell for life insurance sales, nor will it stop advisors from doing estate planning.” life insurance sales, to the extent that there is an impact.” Agents need to remember that peo-ple use life insurance in estate plan-ning for purposes other than tax min-imization, says Philip Harriman, co-founder and partner at Lebel & Harri-man LLP, Falmouth, Maine, and a past president of the Million Dollar Round Table. It is a tool, he says, to use in plan-ning the legacy of the next generation and the one after that. Agents who use life insurance just for estate-tax planning will probably exit the market or transition the busi-ness to other services, Harriman pre-dicts. But those who already use life insurance for many other planning needs will likely continue to use it to leverage assets in the future, he says. Headley, who is president of Headley Financial Group, La Vista, Neb., points the client’s death, and life insurance is often used for that, Headley adds. He ticks off many other uses too, including providing liquidity for survi-vor income, college funding and mort-gage payments; equalizing estates for heirs; and gifting. People can use life insurance to pass money to heirs who will not be inher-iting a hard asset, such as a farm, as well, says Harriman. They can use it to take advantage of generation-skipping tax opportunities and charitable giving through trusts, too. A Potential Windfall Elman, the Los Altos, Calif., advisor, even thinks there is a potential wind-fall in all the opportunities that advi-sors will unearth as they serve clients with estates in the $2 million to $5 million range. For instance, he says, such clients February 2011 InsuranceNewsNet Magazine 19
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