Obama Estate Tax Deal Would Hurt Estate Planners

As I previously mentioned, President Obama agreed to an estate tax rate of 35% and a $5 million exemption on Monday. If the deal struck on Monday holds, how will estate planning be affected? 

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    • There wouldn’t be as much urgency to give large gifts away before the end of the year because the estate tax rate would be equal to the current gift tax rate.
    • Estate planning in general will be discouraged. Many people will see the $5 million exemption level and assume that they don’t need estate planning. People don’t understand that the estate tax is only one of many complex issues estate planners address.
    • More people will rely on do-it-yourself estate planning.

Another estate planning technique that may be at risk is the grantor retained annuity trust (GRAT). A proposal in the House of Representatives would require GRATs to have a minimum 10-year term, which would make them a much less attractive tool. People should try to take advantage of short-term GRATs this year while they are still available.

See Hani Sarji, Obama Estate Tax Deal Would Chill Estate Planning, Forbes, Dec. 7, 2010; see also Brian Wingfield, How the Tax Compromise Might Affect Estate Planning, Forbes, Dec. 7, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.