Estate department: Inheritance tax changes likely to be retroactive

Congress won't act until the new year, planner predicts, then will turn back the clock

Nov 8, 2012 @ 12:04 pm

By Liz Skinner

Congress isn't likely to stop the $5 million estate and gift tax exemption from resetting to $1 million before New Year's. That doesn't necessarily mean, however, that clients only have seven more weeks to take advantage of this planning opportunity, a taxation expert said.

The estate tax component of the fiscal cliff probably won't be addressed during the lame-duck session because lawmakers are expected to focus on preventing tax breaks on income and investment taxes from expiring, said Thomas Pauloski, national managing director of Alliance Bernstein's Wealth Management Group. He spoke at the annual conference of the National Association of Estate Planners & Councils in Orlando, Fla., on Thursday.

Mr. Pauloski said he expects the next Congress to come up with less dramatic increases to the estate and gift tax provisions during its first nine months — and then make them retroactive to Jan. 1, 2013. Without congressional action, the inheritance tax rate will rise to 55% in 2013, from 35%.

“I think the next Congress will make it retroactive and come up with a compromise, such as a $3.5 million exclusion and a 40% estate tax rate,” he said.

Unfortunately, wealthy clients who want to lock in the current rates will likely find it's too late to complete any type of complex donation of illiquid assets, Mr. Pauloski noted. Appraisers around the nation are backlogged into next year, he said, and such legal documents take longer than seven weeks to prepare.

“I was an estate planning attorney," Mr. Pauloski said. "We move like glaciers."

Mr. Pauloski does recommend setting up an irrevocable grantor trust before the end of the year and funding it with the maximum $5 million for an individual or $10 million for a couple. The trusts should be funded with easy-to-value assets like cash and stock.

Next year, such a trust could buy assets that are more difficult to value — property, businesses and the like. The original $5 million in assets could go back to the client, he said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

AXA's Day: Why annuities are returning to favor

Advisers are using annuities more than ever to help drive retirement income. Graham Day of AXA explains why and what's to come for this solution.

Latest news & opinion

Merrill Lynch fined $42 million for misleading customers

In addition to the practice of 'masking' trades, the wirehouse went to extremes to cover up the wrongdoing.

Advisers with billions in AUM leaving Wall Street

Merrill Lynch has seen two teams exit recently, each with more than $4 billion in client assets.

Wells Fargo weighs changes to wealth unit

The move would reflect the bank's effort to cut $4 billion in costs.

Small broker-dealers seek legislative relief from annual audits

Bills introduced in House, Senate would remove PCAOB requirement.

Meet our new 40 Under 40s

For a fifth year, InvestmentNews is proud to shine a spotlight on the amazing accomplishments and potential of top young financial professionals.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print