In any case, he says, it's another example of how death tax "repeal" has made things more complicated. Throw in the fact that family limited partnership and limited liability company strategies are being threatened by the IRS, Knox says, and what you have is a very complicated field of planning and law made even more perplexing.
"Now you have this issue of trying to explain this whole new level of complexity, and many clients' eyes glaze over pretty quickly already when you start talking about estate tax," Knox says.
How are planners dealing with the tenuous future of estate taxes? Many are stressing to clients that frequent reviews of their estate plans will be necessary over the next several years. Marjorie Fox of Rembert, D'Orazio & Fox in Falls Church, Va., says that upon the completion of attorney reviews of client estate plans, clients get a letter with their final documents stating that their plans will have to be updated at least by 2009, and possibly sooner.
As for estate planning itself, Fox says the firm has made only a few adjustments to account for potential changes. Since it's clear that federal exemptions will increase over the next few years, the firm isn't as aggressive in using irrevocable life insurance trusts or annual exclusion gifts, she says.
"Let's say the exemption sticks at $2 million," she says. "That protects a fair number of our clients if they do unified credit planning."
The estate planning clients who should be on high-alert status are those with estates in the $1 million to $4 million range-those falling around the cusp of where the exemption may ultimately fall, says estate attorney Jeremy Lantz, of The Lantz Law Firm Inc. in Atlanta. "At a minimum they should be reviewed every two to three years to take into account tax law changes," he says.
Stuart H. Welch III, president of The Welch Group LLC in Birmingham, Ala., says one thing is clear: Putting off estate planning to wait for a resolution is a mistake. Welch says his firm actually did put its clients in a holding pattern for about a year after EGTRRA, in hopes that there was enough momentum for a permanent change in the tax law. But in light of current events, the firm is moving forward with its estate planning.
"Because of the war in Iraq and the mounting budget deficit, any kind of permanent resolution of the estate tax seems less likely," Welch says. He adds that one of the few changes the firm has made in its planning is to use term life insurance instead of cash-value life in its strategies for paying death taxes.
Many advisors say that instead of worrying about the outcome of estate tax law proposals, they're more concerned that clients and potential clients are putting off their estate planning. Herbert Daroff of Baystate Financial Services in Boston says that while only a tiny percentage of people end up having to pay estate taxes, a much larger number require adequate estate planning. His fear is that talk of death tax repeal is lulling people into a false sense of security.
"Whether we have estate taxes or not, the basic estate planning needs to be done," he says. "You don't want to die in any state in the United States without a will."