Although the tax acts of this era created significant work designing new tax-sensitive provisions and planning techniques, developments in the probate field, traditionally a significant source of work, threatened to offset the new tax -lanning opportunities. These developments included standardized probate forms and reduced judicial oversight of the administration process, both of which meant less lawyering. In addition, even though the increasingly complex tax legislation created opportunity, these laws significantly increased the exemption from tax, thus reducing the number of prospective clients in need of significant estate tax planning.
Foresighted planners of the day, including Tom Eubank of Houston, later chair of both the American College of Trust and Estate Counsel and the American Bar Association's Real Property, Trust & Estate Law Section, recognized the potential impact of these trends and suggested estate-tax planners expand their specialization to complementary areas of law to ensure that their practices remained viable.
While Eubank and his colleagues may have been early in some of their predictions for the profession, in the end these predictions may well prove to be true. In the mid-1970s, the estate-tax exemption had gotten so far behind the growth in real value that the number of descendants subject to the estate-tax was four times greater than it was around the time of World War II.
According to the Internal Revenue Service, the number of estate-tax returns has steadily declined from 108,000 in 2001 to 38,000 in 2007, a period in which the exemption was $2 million (and before the S&P 500's decline of 37% in 2008). With the increase of the estate-tax exemption in 2009 to $3.5 million, there have been projections that the number of returns will drop to between 6,000 and 24,000 for individuals dying in 2009. At an exemption of $3.5 million, over 99% of adults dying in the U.S. will not be subject to estate taxes. Compare this to 1977, when over 200,000 estate-tax returns were filed, representing 10.5% of all adult deaths.
Eubank and panels he organized suggested a number of areas of practice compatible with estate-tax planning and urged estate-tax planners to develop and market their expertise in these areas to offset the loss of estate-tax planning business. Some of the suggested complementary practice areas still merit consideration today, including:
Corporate and partnership law
Tax controversy work
Charitable giving and exempt organizations
Divorce and marital planning
Probate and fiduciary litigation
Elder law
Based on more recent trends, I would add asset protection planning and international tax planning to this list.
Professionals shouldn't abandon their estate tax planning practices, but instead emphasize their non-estate-tax expertise and thoughtfully expand into complementary areas with clearer growth potential. Some of the trends that will impact the growth of these related practice areas are our aging population, high divorce rate, the growth of non-probate assets and increased litigation.
One of the most powerful forces impacting the wealth advisory profession is our aging population. Today, 12% of Americans are over 65. That's a population of about 40 million people and it's expected to grow to 55 million by 2020 and over 72 million by 2030.
Trends related to the "modern family" will also have an impact on non-tax law. Over 50% of today's marriages end in divorce (and most divorcees, particularly men, get remarried). The role of women as wealth creators and decision makers has changed dramatically over the last 25 years. Same-sex marriages and adoptions continue to increase.
Medical developments such as in vitro fertilization and posthumously conceived children have created new challenges for the estate-tax planning profession that have yet to be thoughtfully studied. The growth in both the value and percentage of wealth in non-probate assets, particularly qualified retirement accounts, is another trend of note.
One trend that comes with both cautions and opportunities is our increasingly litigious society and, of particular relevance, the rise in fiduciary litigation. The expiration of the 2001 Tax Act's transfer tax provisions will certainly be a short-term driver of more litigation. Longer term, aging clients will create opportunities for more will contests, guardianship proceedings and the like. The prevalence of blended families will also increase the likelihood of litigation, as will media attention to celebrity estate litigation such as the Brooke Astor case and the ongoing Michael Jackson court actions. The Terri Schiavo case will not be the last in the area of patient rights and end-of-life cases. There is also a growing interest in arbitration and mediation of estate-planning disputes, including the legal effectiveness of document provisions mandating alternative dispute resolutions in will and trust controversies.
As the estate-planning profession continues to evolve, indications are strong that there will be less estate tax work to go around. However, demographic and societal trends present tremendous opportunities for practitioners who develop and market their expertise in complementary areas of practice.