There is more to the estate tax than the FedsArticle added by Jeff Reed on October 10, 2012
Jeff Reed

Jeff Reed

San Diego, CA

Joined: May 07, 2012

Here are a couple ideas to help get your clients off their backsides and ready to take action on some planning in this unprecedented environment.

While estate tax discussions often revolve around the federal government, 22 states plus the District of Columbia impose transfer taxes of some variety. The type and magnitude of these taxes, as well as the exemptions, are all over the map. At least one expert in this article from considers these transfer taxes an issue for states looking to compete with one another.

While I have not spent much time considering factors like transfer tax when thinking about where I live (there are an awful lot of distractions in Southern California after all!), the issue of domicile comes up in financial planning rather frequently. Alaska trusts, Nevada corporations and even states without an income tax have their own unique appeal and place in the process. Based on this article, transfer tax may be right there as well. After highlighting the changes recently enacted in Indiana, the author continues to break down any number of states where there is an active debate about transfer taxes. The article also provides a rather useful resource for any of us in the planning arena — an interactive map showing which states have a transfer tax.

Why bring this up? It is yet another example of the complexity we all face and a reason why so many of our clients continue to take a wait-and-see approach. The phrase "clear as mud" definitely applies to the future of the estate tax, federal and state alike. While a potential estate tax is a good problem to have, it is a problem nonetheless, and needs to be dealt with.

Here are a couple ideas to help get your clients off their backsides and ready to take action on some planning in this unprecedented environment: You will note the absence of one very large topic in these ideas: lifetime gifts. Sure, there is a huge opportunity to transfer assets between now and the end of the year. The fact remains that many, many clients (and even advisors) are not acting on the opportunity. There are a host of reasons, and I am willing to wager that for a significant percentage of advisors and clients alike, it stems from a lack of confidence in how to move forward. Certainly, solutions like the ones above that are based not on the ability to gift but rather the favorable conditions the current economy provides are a good start.

Perhaps a better start, however, is to really understand both aspects we face currently: economic factors and the unprecedented opportunity the current estate tax legislation provides. Put those together and a good planning idea can easily become a great planning idea.
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