New Estate Planning Article on CNBC

Darla Mercado wrote an article on CNBC today called Thanks, Congress. Wealthy investors hold off on estate tax planning.

This article addresses the uncertainty that currently exists to how gift and estate taxes will look going forward. This uncertainty is causing very wealthy people to put off their estate planning until there is more certainty in the law. Congress has repealed the estate tax several times in the past as it is a popular hot button issue for lawmakers. It’s important to remember that the estate tax does not operate in isolation however. The gift tax directly supports the estate tax, and the estate tax connects to the step-up in basis of property transferred at death.

If we want an estate tax, we need a gift tax in order to avoid a situation where wealthy people gift away their assets to get around the estate tax. If there were no gift tax, there would be very little reason to ever pay estate tax.

With a step-up in basis, but without the estate tax, wealthy people are better off holding on to as much of their appreciated property as possible to avoid paying capital gains tax on their property. The combination of the estate tax and the step-up in basis is supposed to allow assets to move around and avoid dynastic families. How well it actually works is debatable.

The step-up in basis does not just help the wealthy; it helps everyone who inherits assets. Keeping the step-up without the estate tax will further worsen the 1%/99% divide in the country. For this reason, it seems unlikely that any repeal of the estate tax will last very long. As the article points out, if you are a wealthy person, unless you are ill or elderly, you will most likely have to pay estate taxes.

The article gives some sound closing advice.

  • The legal uncertainty does not really apply to your basic estate plan. Get your will, living trust, power of attorney, living will and health care proxy.

  • Trusts have additional benefits other than lowering estate taxes. For example trusts can provide asset protection and helps you to avoid probate.

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