Congress Finally Gives us Answers on Estate and Gift Tax

To quote former President Gerald Ford, with respect to the Federal Estate and Gift Tax: "our long, national nightmare is over." Late on January 1, Congress enacted "The American Taxpayer Relief Act of 2012." I won't go into great detail about the act (there is a lot about it we still don't actually know and will have to wait for the analysis of people more capable than I am), but will point out the highlights of the Estate and Gift Tax provisions which are of considerable importance to Estate Planning.

The Act preserves the $5 million per person ($10 million per married couple) "unified" estate and gift tax exemption and indexes it for inflation.

The Act preserves the 2012 levels of a $5 million per person exemption, maintains the "unified"estate and gift structure (meaning the $5 million threshold applied to total transfers, whether by gift during lifetime or inheritance on death), and indexes them for inflation. The Act also makes the concept of "portability," which was added in the 2010 extension for the first time, a permanent part of the tax structure. What "portability" means is that for married couples, the $5 million credit can be allocated or "shared" between them at any time, including after death. This effectively eliminates–in most cases–the need for those "clunky," inconvenient, "AB Trusts" ("his and hers"), and all the allocations and adjustments we were constantly making in those plans. This should have the effect of greatly simplifying the planning process in all but a few instances. The only real, substantive change in the law is a (modest?) increase in the rate (which will only apply after the $5/10 million credit has been used up).

What does "permanent" mean?

Most importantly, the Act makes the current Estate and Gift tax laws permanent. One of my colleagues asked me, what does "permanent" mean? I think that is a fair question. In 2000, the so-called "Bush Tax Cuts" were implemented and because of internal machinations in Congress, were built around a 10-year "sunset." This meant that unless Congress acted during the 10-year period, the laws would automatically expire on December 31, 2010. In a demonstration of the "brinksmanship" for which our modern Congress has become so famous for, in late December of 2010, they "extended" the law for 2 more years.

For the first time in the past 12 years, planners will be able to tell clients what to expect in this area. As we move forward in 2013, I expect that many of our clients will be looking at much simpler estate planning devices.  I think that is a plus

But when they extended the general tax laws, they made unanticipated major changes to the Federal Estate and Gift tax. This was in every way a good change. But it was "temporary," because it was part of an extension, again due to expire recently on December 31, 2012. The new law does not have a "sunset" provision. This means that until Congress acts by legislation to change it, it is permanent. That is as "permanent" as any law gets these days.

My personal view, and what I have been able to glean from reading other sources, suggests that Congress has no appetite to make future major changes to this area, for a number of reasons. So, what we now have is some consistency and something on which we should be able to rely for the foreseeable future.

For the first time in the past 12 years, planners will be able to tell clients what to expect in this area. As we move forward in 2013, I expect that many of our clients will be looking at much simpler estate planning devices. I think that is a plus.

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Is Perception Reality?

Recently I heard an ESPN Sports Radio show suggest that "perception is reality" to high school athletes looking at which university to commit to play for. The phrase has stuck with me lately, much like that song you just can't get out of your head.

 

Lately, it seems like we have gotten an inordinate number of client inquiries and telephone calls from people who ask us to do things for them that are simply not legally or practically possible. They have heard it – at seminars, from radio advertisements and programs, and from various "on-air" personalities and want to know if we can do that for them?

 

"These Individuals are making promises they simply cannot keep."

 

The true reality is no. We cannot and – truth be told – neither can the individuals who said they can. These advertisers and sometimes self-created luminaries are making promises they simply cannot keep. They are broadcasting false or at best deceptive information. But because of the power of the airways, and of repetition, they have created the perception that they are "experts." Therefore, what they say must be factual.

 

I am not naïve. The phrase attributed (rightly or wrongly) to P.T. Barnum – "a sucker is born every minute," is certainly no more the case today than in the past. Nor should it come as any surprise that there are many out there willing to embrace that thought and take whatever monetary advantage they can. The world has always had such players and always will. But what is disconcerting to me is some of my fellow professionals have resorted to these methods to create and sustain business.

 

Don't get me wrong. I have no quarrel with seminars (indeed, I conduct them myself on a regular basis). What I object to is that they are not being used as truly educational seminars, but in many cases are being used to "scare" or "high-pressure" attendees into signing up for follow-up sessions or worse, signing so-called legal and/or financial documents at the time of the seminar. Nor do I have a problem with tasteful and accurate advertising. But what we are seeing is the result of a program of consistent but inaccurate statements on radio, television and print media that purports to address the needs of many customers. And while these tactics are not limited to the elderly, they seem to target and attract their particular needs and circumstances.

 

"These tactics appear to unduly target the needs and circumstances of the elderly"

 

Is this phenomenon just perception on my part? I don't think so. Over the past couple years, I have reviewed documents presented in a printed form in a notebook with fill-in-the-blanks provisions, which my new client has told me was done at or immediately following the seminar. I have also reviewed, on a number of occasions, legal documents drafted by an attorney the client has never met (and who, from all indications, had no idea about either what he was doing, or at the very least, the circumstances and needs of the clients). Instead, the consulting, meeting, and document execution was being done by third parties (who—more often than not—were also selling financial products). And time and again, we have clients come into our office who have been told that the "cookie-cutter" documents they bring us to review have provided them some legal protection or accomplished some goal which they clearly and simply do not do! Regrettably, the documents have often been prepared, presented and executed by staff members other than the lawyer who puts his or her name behind them and upon whose perceived expertise has drawn the client in the first place.

 

It is distressing that a number of individuals have been able to create a perception—one of expertise and one of false solution—for their own personal economic gain. It is an illustration of that lately incessant "song in my head:" Perception is Reality.

Am I on a rant? Maybe.

 

"It is our professional obligation to tell our clients what they need to hear—not what they want to hear."

 

But perception is not reality. It is crucial that good, factual, common sense solutions be explained and applied to the legal problems and challenges presented in Estate Planning and in "Elder law" Planning. It is fair, in my view, for professional to charge a fee and benefit economically for their professional advice. It is, after all, what they do for a living. But we are professionals. That means we have an obligation to give more than "cookie cutter" documents and false hope to our clients. It means we must do our homework. It means we must spend personal, one-on-one time with our clients. It means, sometimes, that we must practice proverbial "tough love," and tell our clients, not what they want to hear, but what they need to hear.

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