Wondering what to tell your clients about their estate tax liability? Join the club.
“This is a time when clients really need planning more than ever because of uncertainty about what’s happening with the estate tax,” says Matt Vandenack, national advanced solutions consultant at Principal Financial.
To help ease your pain, the financial services company is offering a free service that will give you an idea of what your clients' estate tax liability might be based on three different legislative outcomes:
1) Current Law after 2010 or a $1 million/person lifetime exemption and a 55% flat estate tax rate
2) $3.5 million/person lifetime exemption and a 45% flat esate tax rate
3) a $5 million/person lifetime exemption and a 35% flat estate tax rate.
Go to www.principal.com/estate and click on the tab that says Federal Estate Tax Calculations.
Advisors can submit some basic information about clients and Principal will run it through some complex calculations to arrive at three possible estate plan outcomes.
“The website helps advisors walk through possible estate planning scenarios with clients and show them a range of solutions,” says Vandenack. “Most wealthy clients believe they’re going to have some estate taxes, they just don’t know what they’re going to be.”
Principal calculates two potential death years and two potential growth rates for the assets.
Assume you have a married couple who has $10 million in assets in 2010. The website would calculate the fair market value of the estate at the husband’s death in 2020 and 2030, for example. In 2030, the estate would be worth $26.5 million given a 5% growth rate, and $35.9 million at the wife’s death seven years later. Under scenario A ($1 million lifetime exemption and 55% tax), the estate tax liability at her death would be $19,210,105, under scenario B ($3.5 million, 45%) it would be $13,009,370 and under scenario C ($5 million, 35%) it would $8.9 million.
Given at least an idea of what their tax liability might be worth can help advisors suggest solutions, says Vandenack. Even if advisors don’t want to avail themselves of this free service, they can do the various calculations themselves (whether the client is single or married, the compounded growth rate of the assets, and various estate tax scenarios) to estimate estate tax liability for clients in uncertain times. “At the end of the day clients are concerned about taking care of their business and families and charities,” says Vandenack. “You don’t want to let estate tax uncertainty keep you from understanding the client’s needs.”
What if a client or client’s relative dies in 2010? There’s no knowing whether Congress will retroactively enact an estate tax or not, but Vandernack adds that it’s not as simple as just not paying an estate tax. There are state estate taxes to consider, even without an estate tax, and a limited basis step up is available in 2010 on inherited property, so those affected may have to pay considerable taxes anyway.
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