Death Of Estate Tax Has Agents Worried

Washington

Lapse of the estate tax as of Jan. 1 has many insurance agencies concerned with inheritance issues, according to one major producer association.

Congressional failure to pass new estate tax legislation as 2009 came to a close is a key issue for the Independent Insurance Agents and Brokers of America.

In commenting on the trade group's priorities for 2010, Charles Symington, senior vice president for government affairs, said that with the estate tax in limbo and the 2001 and 2003 tax cuts scheduled to expire on Dec. 31, the IIABA "will continue to educate Congress on the impact of tax policy on small businesses across the country."

He said the IIABA supports significantly modifying the estate tax by decreasing the tax rate and/or increasing the exemption amount to provide permanent relief to family-owned small businesses across the country–including many independent insurance agencies.

In addition, he said the IIABA will be lobbying Congress to extend the individual income tax rates to stave off tax increases on the thousands of independent insurance agencies that are organized as Subchapter S corporations and pay individual tax rates.

"The IIABA will also actively oppose any legislation that would raise taxes on individuals and small businesses, including efforts to decrease the itemized deduction limit for individuals in the top tax brackets from 35 percent to 28 percent," he said.

Robert W. Cockren, national chair of the trust and estates practice at Sonnenschein Nath & Rosenthal LLP, said the failure to pass new tax legislation and allowing the current estate tax laws to lapse raise the potential for endless litigation that could ultimately wind up in the Supreme Court.

Moreover, he said, if Congress fails to take prompt action in the new year to resolve the uncertainty over the estate tax, the intent of those who die during the period before Congress acts could be thwarted.

"This is a difficult situation that is fraught with uncertainty for both clients, attorneys and other tax advisors," said Mr. Cockren, who is also co-managing partner of the Short Hills office of SNR.

One of the key implications is that the surviving spouse of the deceased could be left empty-handed because many wills specify that everything above the amount of the exemption under current tax law–$3.5 million in 2009, but nothing as of Jan. 1–goes to the surviving spouse.

He also notes that if Congress acts early this year to restore the estate tax retroactively, there is the likelihood of a challenge to the validity of a retroactive law, which could work its way to the Supreme Court. He said there have been cases where the Court has upheld the validity of retroactive tax provisions.

"The failure of Congress has caused significant confusion amongst tax practitioners," he said.

Expiration of the estate tax at the end of the year marked the first time since 1915 that there has been no estate tax, according to the Journal of Financial Services Professionals.