Estate Tax Band-Aid

Our legislators have again failed to come up with a permanent solution to estate tax reform.  While the final outcome is still very much in doubt, I think there are some conclusions that we can come to regarding the next few years:

• The estate tax exemption will be somewhere between $1mil and $5mil per person.  For a while.  Maybe?  $5 mil for the next two years?  Come on?!
• Any client who is waiting on "clarity" from the government before taking action is going to be very disappointed.
• Those same people will more than likely continue to use it as an excuse to do nothing.
• That will be an expensive mistake.  Guaranteed.

The challenge is how do we as advisors manage this situation and give our clients solid guidance on the topic? 

Easy - Tell them to stop relying on the government to dictate their planning.  Seriously, why would we let these people who can't seem to come to any kind of workable compromise play such a large role in planning our financial future?  It's just silly.  Using the first bullet point above, here is a possible client conversation:

The estate tax exemption will likely be somewhere between $1mil and $3.5 mil.  In some or all scenarios your heirs will need to write a check to the government.  You have two choices - self fund this risk dollar for dollar or pre-fund with discounted dollars.  Which would you like to do?

We could even go crazy and simply talk about what they want their money to do for those they leave behind.  My guess is that some will not care that it goes to the government, but some will.  Those who care are possible insurance buyers, and at the very least good prospects for additional planning work.  Remember, estate tax planning is only one aspect of estate planning!

My last point for the day is this - If the current environment proves anything, it is that current law is just that - current law - and hoping that it will still be in place when they pass away is delusional.  Having some tax-free, liquid cash will never, ever, be a negative.  It's time to take the control of this issue away from our government and place it back where it belongs - with the client and their advisors. 

Have a good weekend, and don't spend too much finishing up your holiday shopping!