Near-death experience; Opinion: Permanent repeal of the estate tax is highly unlikely. (Life/Health: Estate Planning).On June 7, 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001. The bill contains a gradual reduction in estate-tax rates, a gradual increase in the estate-tax exemption limit and a temporary repeal The Annulment or abrogation of a previously existing statute by the enactment of a later law that revokes the former law. The revocation of the law can either be done through an express repeal of the tax itself. Due to the sunset provision A statutory provision providing that a particular agency, benefit, or law will expire on a particular date, unless it is reauthorized by the legislature. Federal and state governments grew dramatically in the 1950s and 1960s. contained in the bill, however, estate taxes will completely disappear only in 2010 and then reappear reappear Verb to come back into view reappearance n Verb 1. reappear - appear again; "The sores reappeared on her body"; "Her husband reappeared after having left her years ago" in 2011. Because of that provision, no one can plan with any degree of certainty that the estate tax will be gone after 2010. In fact, that's highly unlikely. The substantial surpluses of the last few years are already gone; the administration is proposing a return, at least for a few years, to deficit spending Deficit spending When government spending overwhelms government revenue resulting in government borrowing. deficit spending Expenditures that are in excess of revenues during a given period of time. ; and the country has launched a war on terrorism Terrorist acts and the threat of Terrorism have occupied the various law enforcement agencies in the U.S. government for many years. The Anti-Terrorism and Effective Death Penalty Act of 1996, as amended by the usa patriot act with an unknown scope and duration. Each of the four times Congress has enacted an estate tax, the purpose has been to pay for war or other military expansion. So the prospects for permanent estate-tax repeal would seem dim. Estate taxes are not new in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . The first estate tax was introduced in 1797, then was repealed and reinstated three times before becoming a more permanent source of revenue early in the 20th century. (See "History of the Federal Estate Tax" on page 90.) Since then, the tax has been modified many times. The estate tax brings in about $30 billion per year. Prior to the 2001 tax bill, revenue was projected to increase to $50 billion per year by 2010. Post-tax-bill projections estimate revenue in 2010 to be about $26 billion. Role of Survivorship survivorship n. the right to receive full title or ownership due to having survived another person. Survivorship is particularly applied to persons owning real property or other assets, such as bank accounts or stocks, in "joint tenancy. Life The Economic Recovery Tax Act in 1981 created the unlimited marital deduction Unlimited marital deduction An Internal Revenue Service provision that allows an individual to transfer an unlimited amount of assets to a spouse, during life or at death, without incurring federal estate or gift tax. . For a married couple, this delayed the payment of estate taxes until the second death. How would heirs come up with the money to pay these taxes, particularly if the estate included a large proportion of nonliquid assets? Survivorship life insurance provided the perfect solution. Limra has tracked survivorship sales since the late 1980s. Currently, survivorship life accounts for nearly $1 billion of new premium per year. Sales increased dramatically in recent years, through the first half of 2000. When Congress passed an estate-tax repeal in July 2000, sales slowed down, although that version of the repeal was vetoed by President Clinton. Sales have not yet recovered. Annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. premium in 2001 was down 26%, compared with 2000. (See "Survivorship Life Insurance--Annualized Premium Change" on page 90.) Limra surveyed survivorship writers after the repeal was passed to gauge their view of the impact of the changes in estate-tax law. Most view these changes as having little impact on their survivorship sales. More than four-fifths of respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. think the bill will have at most a minor (less than 10%) negative impact on their survivorship life sales. Nearly all companies have taken initiative in explaining the changes to their producers. This is not surprising, given that survivorship life is a producer-intensive sale. It's important that producers are armed with the facts. To do this, companies have held teleconferences and road shows, put information on producer Web sites and provided brochures, PowerPoint presentations and seminars to use with clients. About two-thirds of survey respondents prepared material for potential clients on the impact of the bill, and about one-third communicated with existing clients. The client communication pieces--which include letters, brochures and frequently asked Questions--focus on the uncertainty of the repeal. At the time of the survey, only a few companies had made product changes as a result of the changes in estate-tax law. The most common changes are "escape clauses in survivorship products that waive To intentionally or voluntarily relinquish a known right or engage in conduct warranting an inference that a right has been surrendered. For example, an individual is said to waive the right to bring a tort action when he or she renounces the remedy provided by law for such surrender charges Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. or provide a return of premium if the estate-tax repeal does become more permanent. Wealthy consumers also have been paying attention Noun 1. paying attention - paying particular notice (as to children or helpless people); "his attentiveness to her wishes"; "he spends without heed to the consequences" attentiveness, heed, regard , but they still don't seem inclined to change their estate plans. A June 2001 survey of affluent consumers conducted by Limra and McKinsey & Co. asked, among other things, about the recent estate-tax changes and whether these consumers planned to take any action as a result. Nine percent intend to change their plan as soon as the new regulations take effect. Forty-seven percent will review their plans in the near future, while the remainder probably will do nothing. The Phoenix 2001 Wealth Management Survey of high-net-worth consumers, those with $1 million or more of investable assets not including their primary residence, found that nearly two-thirds (64%) believe their estate taxes will decrease as a result of the bill. That may well be true if these consumers die by 2010 or if Congress extends the repeal. Given that nearly half (47%) plan to consult a professional adviser about the impact of the bill, this group may need more information on the new law. Outlook for the Estate Tax As it stands today, the estate tax will return in 2011. Extending the repeal or making it permanent will require legislative action. Whether that happens depends in part on which parties are in power. The 2001 bill passed during the five-month period when the Republican Party controlled both houses of Congress and the White House. That already has changed with the move of Sen. Jim Jeffords
Beyond political party control, the question remains whether the government can afford to extend the repeal. The projected surpluses that led to major tax cuts already have disappeared. Baby boomers See generation X. will begin turning 65 in 2011 and start lining up for Social Security and Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. benefits. And the fiscal impact of the war on terrorism remains unknown. Under current law, repeal is uncertain at best. High-net-worth consumers probably will continue to be subject to estate taxes, and many will use survivorship life to pay those taxes. The fate of survivorship life is not solely dependent on the eventual resolution of the estate-tax issue. If the estate-tax repeal does become permanent--an unlikely scenario--survivorship life will take a bigger hit, since one of the primary uses for the product will disappear. But survivorship life can serve other needs as well, such as paying capital-gains taxes incurred under the carry-over basis rules in the 2001 law. Parents also can use survivorship to equalize e·qual·ize v. e·qual·ized, e·qual·iz·ing, e·qual·iz·es v.tr. 1. To make equal: equalized the responsibilities of the staff members. 2. To make uniform. inheritances to children when estates are based largely on nonliquid assets, such as a small business. And in the small-business market, life insurance is frequently used to fund business-continuation plans. Although there still would be uses for survivorship life if the estate-tax repeal became permanent, sales would be likely to decline substantially. Companies active in the high-net-worth market would need to find other ways to serve this market or expand their focus to include other markets. But the estate-tax repeal is very likely to be a phantom repeal. The fact that Congress needs to act to extend the repeal, coupled with numerous budget uncertainties, suggests that affluent consumers will need to plan to pay estate taxes for the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future. And there are many opportunities for the insurance industry to help affluent consumers in this effort.
Survivorship Life Insurance--Annualized Premium Change
Survivorship life sales slowed after Congress passed an estate- tax
repeal in July 2000, although President Clinton vetoed the bill.
1991 19%
1993 6%
1995 1%
1997 10%
1999 24%
2000 11%
2001 26%
Source: Limra International
Note: Table made from bar graph
History of the Federal Estate Tax
Each time Congress has enacted an estate tax, the purpose has been to
pay for wear or other military expansion.
Estate Tax Legislation in Effect
1797-1802 Fund Navy
1862-1870 Fund Spanish-American War
1916-2009 Initial purpose: Fund
World War I
Source: Limra International
Elaine Tumicki is assistant vice president, product and distribution research, for Limra International, Windsor, Conn. |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion