Noting the potential impact, Jim Duggan, an estate and wealth planning attorney at Duggan, Bertsch LLC in Chicago says, "There is a real pressure point from very prominent figures, and other [high net worth] clients are looking at [the pledge] as an example."
Duggan says that if the wealthy were already giving while living, the Buffett-Gates pledge has reinforced their philanthropic approach. "It is motivating more current action on the part of those who were on the fence or have not yet committed to their philanthropic structure," he says.
He adds that there is also a political factor at work. Most of the giving of his clients, chiefly wealthy entrepreneurs and small business owners, is "motivated by disapproval of government spending in general and the desire to take [disbursement of their funds] into their own hands."
Still, given the estate tax ambiguity, the pledge is "not necessarily going to result in people dashing off a check before year-end to a charity in any different way than they might or would do otherwise," Haefele cautions.
Because of the changing estate tax rules, drafting estate plans has become more complicated, and Duggan, for one, finds himself drafting several different types of plans to cover various contingencies instead of just devising one conventional plan. Those lawyers who do rely on just the conventional plan are taking risks, he says.
"Drafting is a lot more complicated, but people are not thinking about that," he says. "They're thinking about what it is in the plan I need today. And lawyers are making the same mistake. You really need to draft plans that accommodate both possibilities: no tax or a lot of tax."
Estate Tax Ramifications
In an economy that is teetering, it's been tough for the rich to expand their wealth. But donating it to their heirs has become much easier, at least in 2010. By most accounts, the Bush tax cuts of 2001 helped estate planners, heirs and givers. Interest rates have hit rock bottom and the estate tax has disappeared (for this year alone, at least). If this is nirvana, however, it could rapidly change. The tax breaks expire at the end of the year, and Congress has not decided whether to come up with new ones (at least not as of this writing).
Regardless, there is still time for affluent individuals to consider or reconsider how they might help both their heirs and their favorite charities.
Those clients who transfer wealth before the end of 2010 can avoid the negative consequences of 2011: Next year, the maximum gift tax rate will increase to 55% from 35%; the maximum marginal estate tax rate will go back up to 60% (after going all over the map, from 45% in 2009, to 0% in 2010); and the applicable exclusion amount will decrease in 2011 to $1 million from its 2009 level of $3.5 million.
"As the law stands now, and assuming Congress does nothing, anyone who has $1 million or more will be affected by the estate tax starting next year, and will owe 55% of any assets over $1 million to the federal government at their death," says Haefele. (Spouses are still excluded, so it is essentially a $2 million exemption, or $1 million per spouse.)