Estate Tax Eliminated? Now What?

Or Work Smarter. . . .

For those of you who have concentrated on value added service, this is an opportunity, not a disaster. 

End of Estate Tax as We Know It?

There is a growing chorus of tax planning professionals and attorneys who are forecasting the end of Federal estate tax. They voice some concerns about the loss of planning opportunities = less revenue for attorneys who do estate planning. Tax avoidance has been a key ingredient for many practitioners since the late 60’s to help clients avoid state and federal estate tax. Frequently, trusts were employed to take full advantage of the unified credit equivalent opportunities for spouses. Estate tax avoidance was, for wealthy clients, the mother’s milk of revenue for many estate planning attorneys. 

Estate Tax Planning and Avoidance Less Relevant

As the tax code has been modified to increase the size of a decedent’s estate which can pass tax free, the tax avoidance options become less viable meaning that many clients no longer need some of the complex tax planning to avoid state or federal estate tax. Currently, the federal tax code allows a single individual up to 5.45 million unified credit equivalent for property controlled by the decedent at the time of their death which passes at their death, and double that for married spouses. The vast majority of individuals do not have assets under their control, at the time of their death, that exceed that amount.

As reported by The Tax Policy Center, http://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax , this amounts to an estimated 11,300 tax returns will be filed for 2017 down from 109,600 returns filed in 2001. This has been an ever decreasing number due to the large and growing generous exemption amount. Some have suggested this generosity has, in part, been due to the large estates of those who serve in Congress. Others, voice the opinion that all of this property has already been taxed in numerous ways and that it isn’t fair to levy another tax in the very end. The estate tax was largely created to fund the Civil War, the Spanish American War, World War I, and with the Revenue Act of 1916 that tax has existed without end since then. So, as a stop gap measure designed to finance armed conflict, the purpose it originally served is somewhat outdated.  Perhaps, in consideration of that original purpose, Congress recognizes other sources of revenue have taken place of that funding source. Those new sources of funding far exceed estate tax revenue. Estate tax levies have become inconsequential and obsolete for its original intended purpose.

Planning Options If Estate Tax Eliminated

If the estate tax is totally abolished, this will mean less focus on tax avoidance. But, as we have seen in the past, one hand can give while another hand can takeaway. And, politics is fickle. Would you counsel a client to put a plan in place and never plan for change in the future? Of course not. Even though tax avoidance may be in vogue, that can always change. For clients of significant wealth, I can pretty much assure you that change is the constant. Planning for the reinstitution of estate tax should still be on the shelf and raised as a possibility for all of your clients. 

What this means is that you need to have a maintenance program option for all of your clients. They need to continue to be in touch for the inevitable changes in the tax code. Many practitioners do not offer this option (I believe this is a grave mistake).  Some offer it for a fee. Some offer a review of client documents at no charge every three or five years. Some offer to do this with a fee attached. In either event, you need to have current contact information for all of your clients. With email, it is easier than ever to stay in touch with your clients. People are more and more mobile changing addresses to deal with health care issues, jobs, changing retirement environments. But, they are far less likely to change an email address. So that you can keep in touch through newsletters and annual contact to tell them about changes in the law which may affect their estate plans. And Facebook provides you with the ability to friend your clients and keep them posted on changes in the law that might inspire them to contact you to update their documents. 

Expand Your Area of Influence

Place less emphasis on tax avoidance and more on new areas;

  1. Pet trusts
  2. Gun trusts
  3. Transfer of family business
  4. Cottage trusts
  5. Offer special needs planning and social services for children diagnosed with disabilities
  6. Senior estate planning options
  7. Health care advocacy
  8. New and evolving technology related estate planning transfers

Maintain and Nurture Current Relationships

No longer are you isolated from your clients upon preparing and funding their trust. Now, you have the ability to keep in contact and share ideas and update information at little or no cost to you. With each contact, you may open the door to a new or expanded service. Look to your current client base as one of the most profitable and easily mined sources of new business. People can look for resources on the internet, but they are always checking reviews on those websites to determine the adequacy of representation. What you have going for you is an established reputation and known quality of representation. By keeping your former client informed and in touch, you have much greater opportunities for referrals through and by those clients. As a result, estate planning becomes more akin to an ongoing relationship with your primary care physician. If you see it that way, and if you cultivate that relationship, it will produce smaller incremental income events, but result in much greater revenue over time than you could ever obtain through infrequent contacts every 10 or 15 years or when major catastrophes are visited upon a former client such as a death or divorce.  

Become Their Primary Care Attorney

You visit your primary care physician for an annual checkup. The cost will vary depending on the need for additional follow up. Your annual check up is not costly, but if your primary care doctor finds you have an arrhythmia he might refer you to a specialist or conduct additional tests to determine whether a referral is necessary. In the same manner, you should encourage your clients to come back to you annually or tri-annually for a check up.  Within three years, I can virtually guarantee that the state or federal laws will dictate a different approach to an estate plan. You can schedule these reviews during your less busy times, or have your staff do them when time allows creating more efficiency in the office filling in those quiet times with low cost annual reviews for each client. This way, you may generate much less revenue for the annual review than you would for a completely redone estate plan. But small amounts add up. Also, if it is predictable annual income staged when you can recognize your greatest efficiency, it builds your annual receipts over time as your client base grows. At the same time, it offers your clients a service that keeps them coming to your door and not seeking on line resources or the services of other competitors. That can improve your bottom line.

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