NORTH BAY -- Financial planning and wealth management is still up in the air due to the lack of new rules on estate taxes and lack of knowledge of where they will go.
Part of the uncertainty lies in that people do not know whether whatever tax does pass will be retroactive.
Some financial planners think there will not be any estate tax passed at all this year.
“This is an election year,” said Jay Silverstein, a principal at Moss Adams. “Also Congress has been caught up with the health care bill.”
He said the American Institute of Certified Public Accountants has indicated that because there is already legislation with other financial planning tools, the estate tax may just not be dealt with, and it would go back to the $1 million exemption in 2011.
“There is a fairly reasonable possibility that there will not be an action this year,” he said.
Because of the existing capital gains tax, there is not as much of an incentive for Congress to pass legislation, because even if there is not estate tax, an heir is paying tax on the difference in the price of an asset, so the loss from estate tax is not necessarily a motivating factor.
“If they do change the estate law this year and it becomes retroactive,” said Mr. Silverstein, “there has been some talk that there may end up being a choice of paying the estate tax or capital gains.”
“Depending on how appreciated your assets are, either might be a good choice. If you bought an asset for $1 million dollars that is now worth $10 million, you might be better off with the estate tax than capital gains tax on the $9 million. It is very uncertain, and that has created a lot of problems.”
With the market changes in the past few years, estate planning and wealth management have difficult regardless of the lack of estate tax.
“It is like being a counselor," said John Whiting, partner with Moss Adams in Santa Rosa.
“It is terrifying for clients,” he said. “They may know they are not positioned well but are too scared to do anything about it.”
He said while it is different and much more pronounced than anything else, it is just an exaggeration of every downturn.
Another piece of legislation is in the works relates to a business interest transfer.
“About 15 years ago the Internal Revenue Service lost cases and published that when a living person makes a transfer, the minority interest being transferred gets a discount," said Fred Caspersen, an attorney and partner with Farella Braun & Martel.
But the Treasury department has proposed that rules that apply in other contexts, such as a 100 percent transfer to an outside party, should apply to family transfers as well.
In the case where a business is divided into five parts and given to five family members, “You are not transferring 20 percent to five different people, you are transferring 100 percent to your family, and the proposal is to treat it as such,” Mr. Caspersen said.