Why is this Topic Important to Wealth Managers? Presents discussion on the effect of the Obama Tax Cuts on the Estate Planning industry in general.  Also presents analysis regarding the estate tax burden on taxpayers.

The quintessential planning tool that many wealth managers relied on could easily become a thing of the past.  In other words, the Obama Tax cuts are creating concern for some wealth managers who sold life insurance to cover the tax of an estate at the death of the decedent. Sections 301-304 of the new law reinstated the estate tax, but nevertheless, created large exclusions, essentially removing the need for many to cover the estate tax burden with the purchase of life insurance.

Specifically, the applicable estate tax exclusion amount is $5 million under the law (and is indexed for inflation) for decedents dying in calendar years starting in 2011. Married individuals’ will see a total exclusion of $10 million.  Furthermore, the new law reinstates the maximum estate tax rate of 35 percent.

The high exclusion limit is creating concern among the life insurance industry in particular.  Many wealth managers are aware of the benefit of purchasing life insurance to cover the estate tax burden that a high-net worth individual may face.  Nonetheless, creative wealth managers are finding other ways to sell life insurance and other insurance products, such as annuities, in this changing estate tax climate.

“I’ve turned a lot of my attention to business succession planning”, states Martin Levine, a wealth manager representing high net worth individuals on Long Island, New York.  “Not many clients are going to have an estate over $10 million” says Levine.  Mr. Levine’s contention is not far off; estimates show that in 2009, under the $3.5 million exemption level, only 34,000 estate tax returns were filed.  Moreover, 43 percent of all estates, reported deductions for marital bequests.  Another, 19 percent of estates claimed a charitable bequest deduction.

This means that after the deduction for marriage exclusions, including any charitable bequest deductions, less than half of all estates that filed an estate tax return actually owed any estate tax.  The number of estates that will be subject to pay an estate tax will likely decrease on a going forward basis, because of the large increase of the exemption amount to unprecedented levels.

The estate tax obligation of all estates, in 2009 was approximately $21 billion.  The total Federal receipts in 2009 were $2.213 Trillion.  Therefore, the estate tax represented approximately 0.99% of all Federal revenues.

Just 10 years prior (2000) 108,322 estates filed a return, where 52,000 were taxable estates for a total of around $24.5 billion which represented approximately 1.2% percent of Federal receipts.

Tomorrow’s blog will continue to discuss pertinent provisions of the new Tax Cuts and how they relate to wealth managers.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

Tags: estate planning, Inheritance tax, insurance, life insurance, Tax, Wealth

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