Financial planners see uncertain future for estate tax system

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Published: April 30,2007

What’s to become of the estate tax system? Within the past year, Congress tried unsuccessfully to permanently repeal the odious tax, which had its last major revision in 2001. With Democrats moving into power and no action taken, estate planners say the future of estates taxes is uncertain.

“Presently our estate tax system is in a state of flux,” said David W. Martin of Trustmark Bank. “Instead of trying to repeal estate taxes, many people feel we would have been better served if Republicans had reached a compromise with the Democrats to create a new estate tax system in 2006. No one knows for sure when the Democrats will enact new legislation to replace the Tax Act of 2001.”

Washington showdown

A senior vice president and director of wealth management consulting at Trustmark, Martin would ideally like to see the tax repealed, but thinks it’s out of the question now with the standoff in Washington.

“At one time I thought it might happen, but I don’t think it will. Now, I would like to see the exemption raised to $3.5 million or $5 million per individual,” he said. “That’s what is being floated out there now, and the likelihood is good, but the time frame is uncertain.”

Ben Windham, an attorney with Watkins Ludlam Winter & Stennis, also would like Congress to enact legislation stabilizing the exemption (unified credit amount). This amount is scheduled to increase to $3.5 million per individual in 2009 and to be repealed in 2010.

“In 2011, however, the unified credit reverts to $1 million per individual. It is very difficult, given the current fluctuation of the unified credit, to assist clients with their estate planning,” he said. “Most practitioners expect Congress to enact new legislation prior to the sunset provision of 2010 that would set the unified credit somewhere between $3 million and $5 million per individual.”

Martin notes that Congress has been having these discussions since 2001 with the Republicans wanting to repeal the law. “It didn’t pass because they couldn’t get the votes. They drew a line in the sand and said that’s it or nothing,” he said. “We’re stuck in this position.”

Meeting needs

He advises individuals to see their estate planning advisor or attorney although anyone who has written a will since 2001 is probably okay. “You must go in now and determine if it still meets your needs,” he said. “The sad thing is that even if it’s all okay, it will have to be looked at again if Congress passes a new law. A will is not as appropriate for the same length of time as it was in the past.”

To stay current with estate tax laws, Windham advises clients to subscribe to monthly or weekly tax updates from companies such as BNA or CCH, or to seek out information at a local law library.

“For instance, in the Jackson area, there are two great libraries, the Mississippi College School of Law and the State of Mississippi Law Library, that keep volumes of current tax periodicals that are available to the public,” he said. “If a person has concerns about estate taxes, however, the best way to stay informed is to contact a competent tax professional who has experience in the field of estate taxes.”

Windham says online research is also possible but has drawbacks. “Anyone can perform a search through just about any search engine and obtain volumes of tax information,” he said. “The problem is that most of the tax information found on the Internet is written by persons who may not be experts in the area, and much of the information is often outdated or incorrect. Unless the person is fairly knowledgeable about the subject, the Internet is not the best way to keep updated.”

Contact MBJ contributing Lynn Lofton at llofton656@aol.com.

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