On the Estate Planning "Conversation"

I have seen a wide range of attitudes among clients. Without getting into too much detail, I have seen everything from gratitude to suspicion. I realize that many clients are sometimes pulled into an estate planning meeting unwillingly -- by spouses, or (perhaps more often) due to their own feeling that they "have to do" something about their estate plans.

It IS, after all, an inherently uncomfortable subject. Without a doubt, I am sure that many clients would rather go out to a nice dinner, or throw a party, than meet with and then hire a lawyer to prepare estate planning documents.

I'm sure that some of my clients would even prefer a meeting with their dentist.

A recent New York Times article addresses this difficulty of opening up "The Conversation" with a family member. Here is the opening excerpt of an article addressing this even touchier family dynamic:

For many people, estate planning is both a private matter and a morbid topic — not something that parents and their adult children want to discuss. While having these conversations takes a lot of courage, they can help avoid surprises, lead to better financial planning and promote family harmony.

Julie Busch, a vocational consultant in Seattle, asked her father, Russell, about his estate plan last summer after learning he had brain cancer. She was surprised to find that Mr. Busch, a lawyer specializing in American Indian rights, did not even have a will.

Take heart. These are difficult issues (and I know this from personal experience), from my own life. For me, it was no easier than it is for my clients.

The Return of the Estate Tax, Redux

In my last post I addressed the return of the estate tax. A recent Forbes article also addresses what will be an unhappy event for many. The article starts with this story:

Like many couples in their 30s, Sara and Joshua Mancell didn't even have wills before they became parents. But early this year, a few months before their son Eli's first birthday, the Minneapolis couple finally tackled this essential task. As a first priority, should the unthinkable happen, they needed to pick a guardian for Eli and a trustee to manage the money left to him. But with a net worth nearing $1.4 million, Sara, a Westinghouse engineer, and Joshua, an Ameriprise investment advisor, also had to take steps to reduce potential state and federal estate taxes that could cut into the resources left for Eli.

The federal estate tax lapsed on Jan. 1, 2010. But under current law, it will rise from the ashes on Jan. 1, 2011, and at that point--unless Congress intervenes--only $1 million per estate will be exempt from a stiff 55% tax. That compares with a $3.5 million exemption and a 45% rate in 2009.

The Billionaire Estate that Got Away

There are not many of us who think about estate taxes anymore. With the 2001 tax reform act, the Economic Growth and Tax Relief Reconciliation Act of 2001, the exclusion against estate tax increased from $675,000 in 2001, to $2 Million in 2006, to $3.5 Million in 2009 – with a few other increases in between. This year, the tax is completely repealed, even though the rules relating to basis have changed (a complexity which is way, way beyond the scope of this post). Next year, the estate tax returns with an increased tax rate, and the exclusion only shields a relatively, paltry, $1 Million -- subjecting many more estate to the tax and a higher tax rate.

Doesn’t it seem like a million years since the 2001 tax reductions?

In any event, most of us have been able to comfortably ignore this tax because it has not been relevant – even though financial and estate planners were assuming that Congress would not allow the complete repeal of the estate tax to stand. Most estate planners assumed that our representatives would at least attempt to clarify the law by December 31st of last year. But, that did not happen…

Now, Congress’ inaction has lead to a significant loss to the federal treasury, with the death of Dan Duncan, an oil pipeline tycoon whose net worth is estimated at $9 Billion. Had Dan Duncan died 3 months earlier, before December 31, 2009 (when there was still an estate tax), his estate would have been subject to a 45% estate tax after the $3.5 Million exclusion. Had he died in 2011 – a few months later – his estate (again, after the lower, $1 Million exclusion) would have been subject to a 55% tax rate.

The New York Times recently had an article discussing this “quirk” in the law, and what it means to a federal treasury hungry for dollars:

The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is now trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.

Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.

Most of us have not had to worry about the estate tax . But with a lower exclusion amount and a ballooning deficit, again reducing the chance of any tax relief, more of us will have to start to worry about it.

The World Financial Catastrophe Explained

I came across this YouTube explanation of the world economic collapse off of a Facebook posting from a colleague, John Thompson of ThompsonSpiteri. It's humorous, in a "gallows humor" sense: