Business Consequences

As was explained, this act has far-reaching consequences. Among other provisions, it increases the estate-tax exemption to $5 million per person, makes the exemption portable between spouses, allows a surviving spouse any unused exemption, caps the estate tax rate at 35 percent, and increases the gift tax exemption from $1 million to $5 million.

The act, however, offers only a two-year reprieve from the sunset provisions of two previous bills passed early in the decade, known collectively as the “Bush tax cuts.” There is no guarantee that the provisions of this act will be renewed again two years hence.

The first question put to the participants was how this measure would affect their clients. “I believe it’s going to have a positive effect moving forward,” said Matt Melton of Northwestern Mutual. He believes that given the bill’s two-year window, it will induce clients to take the initiative to discuss succession plans.

Seamus Smith, an attorney with Creative Planning, expects to see successful small business owners take more interest in moving wealth and engaging in more gift transactions, given the bill’s higher gift exemption.

Bob Hodgdon, president of Hodgdon Powder Company, discussed the bill from the client’s perspective. As it happens, given anxieties about the administration’s stand on gun-related issues, Hodgdon Powder was one of the rare companies to prosper in the last two years.

With an eye on the future, the owners took cash out of the company anticipating higher capital-gains taxes once the Bush tax cuts expired. That did not happen. “The new law I think is great,” said Hodgdon, “except it is for only two years. So one more uncertainty moving forward is going to continue to be a problem.”

“Now we know for certain that we have uncertainty,” said Julie Welch with an oxymoronic flair. A CPA and financial planner with the accounting firm Meara Welch Browne, she believes that the key to client planning is flexibility. “You have to stay flexible because you know there is going to be change whether it’s the estate planning, the income tax planning, or the charitable planning.”

David Weaver of Edward Jones confirmed Welch’s concerns about uncertainty. “I have an alternate name for this bill,” said Weaver only half-jokingly. “I call it the ‘two-year window to transfer you business act.’ ”

Mike Esser argued that there may be more certainty than people believe, given the way this estate tax relief came into being. “I think this deal is going to stick in the 112th Congress,” he noted. “Permanent would be nirvana.”

Regardless of its permanence, Weaver hopes that people are going to use this two-year window provided by the act to save more for retirement. As he explained, just a year ago, clients were facing likely tax increases for various wealth transactions, but now they have at least two more years to diversify their tax situation. He recommended that his colleagues “really step up how we are educating our clients.”

Among others, Gary Boomer of Boomer Consulting seconded Weaver’s emphasis on education. “In the past,” he elaborated, “the tendency has always been to have that core knowledge of everything inside your own organization.”

Now, Boomer sees more and more firms seeking out knowledge leaders in related fields. Although based in Manhattan, Kan., Boomer’s firm has developed symbiotic relationships with firms throughout the world.

“This tax act is going to have a huge impact on our practice,” said Jim Betterman, an attorney with the law firm of Lathrop & Gage. “Everyone, I think, concurs on that.”

He noted that “portability sounds great” —“portability” meaning here the transfer of any unused federal estate and gift-tax exemptions from the estate of a deceased spouse to the surviving spouse—but he cautioned that portability was only certain for two years. Whether it continues, he argued, depends on “the legislative wizardry” of our newly elected Congress.