 |
 |
| Article | |
| |
Attorneys Cautiously Optimistic About
Repeal
Kyle Krull, Esq.
and Jennifer Campbell
Integrity Marketing
Solutions
From the April
2001 Trusts & Estates, Mar 26 2001
|
|
For full survey results,
click here.
Since the most recent version of the estate tax was
enacted in 1916, trusts and estates attorneys have helped
taxpayers and their heirs minimize and even eliminate
substantial wealth transfer taxation. Through the years and
the many variations in the tax code, these attorneys have
created complex legal arrangements to effect the often
tax-motivated estate plans of their clients. Bearing acronyms
like RLT, FLP, GRAT, GRUT, CRAT, CRUT, ILIT, IDIT and SCIN,
these legal arrangements not only have helped clients retain
more wealth, but they also have helped trusts and estates
attorneys provide food, clothing and shelter for their own
heirs. With the drumbeat ever louder for estate tax repeal,
how do these same trusts and estates attorneys view a life
after estate taxes?
According to our research, most trusts and estates
attorneys are concerned about the impact of the proposed
repeal on their practices, only half have a plan for the
growth/survival of their practices, most believe they will
have to expand their service offerings in order to survive,
but only a scant few say they will leave the practice of
estate planning.
Integrity Marketing Solutions is a marketing and
practice development firm. We serve a niche market of trusts
and estates attorneys and have done so since 1995. With more
than 100 client firms nationwide, and more than 300 members of
our online discussion forum, we hear daily from a broad range
of attorneys about their practice challenges, especially
regarding the proposed estate tax repeal. Still, merely
visiting with a handful of attorneys did not supply us with
the information we felt was critical to help our clients
navigate this sea of change. We found that, among our own
clients, opinions varied widely as to whether the tax would
ever be repealed, whether it might be significantly reformed,
and whether it would make any difference to them either way.
Because we felt we needed a broader, more formal means
to gauge opinion than our daily conversations with clients, in
February of this year we conducted an online survey to gauge
attorney opinion on the impact estate tax repeal might have on
their practices. The goal of our survey was to hear from a
broader base of attorneys who could respond anonymously, as to
their views toward estate tax repeal, whether they believe
repeal is imminent, how they think repeal would affect their
practices, and what their plans are to respond to this new
challenge.
Will trusts and estates continue to be a viable
practice area? Beyond the questions of how the law will
change, or how the practice of law will change, we wanted to
know how the practice itself might change. Would the fee
structure be impacted? How will revenue be generated, and from
where will the referrals come? Are there significant new
opportunities created by repeal, and if so, how will the
practice transform to take advantage of them? What
opportunities are not impacted by estate tax repeal, and how
significant are those opportunities to the practice? In
essence, we wanted to know how the trusts and estates practice
will continue in the absence of a federal estate tax, and how
we might assist our clients in planning — not only to survive,
but to thrive in a world without federal estate taxes. At the
very core of our survey was this underlying question: Could we
envision an estate planning practice model that could be
financially viable, whether in the context of a solo practice,
a boutique firm or within a larger firm? Alternatively, should
we look to Canada for our answers? [One of our survey
respondents adroitly noted in his commentary that “75 percent
of the estate planning attorneys had left the practice area
within five years after Canada repealed their estate tax.
Where did they go? Most went into family law.”]
Survey Methods and
Demographics
We conducted the survey
online at www.estateplanningpartners .com, promoting it to our
own clients and to members of our online discussion forum. We
also encouraged our clients and members to forward the
hyperlink of the survey to their colleagues and to other
discussion forums. Additionally, news of the survey was
carried over the online newswires, including the Yahoo!
Bizwire. More than 200 attorneys responded, ranging from those
with solo practices to attorneys in national firms with 100 or
more attorneys.
To encourage candid responses, we did not ask the
attorneys to identify themselves by name or firm nor did we
include any tracking mechanisms on our Web site that would
allow us to identify them. All of the respondents remained
completely anonymous. We did, however, ask for some basic
demographic information to assist in analyzing the results.
More than half of the respondents (53 percent) have been
practicing in this area for more than 10 years, fully 26
percent listed more than 20 years of experience. Two-thirds of
the respondents were solo practitioners or from small firms,
11 percent were from mid-sized firms of less than 50
attorneys, and 18 percent said they practiced in firms of 50
or more attorneys.
In-Depth Summary of
Results
A little more than half (51
percent) of our respondents said they believe Congress will
enact some form of estate tax repeal this year. While 73
percent said they were concerned about how repeal would affect
their practices, only about seven percent said they would
leave the practice of estate planning if the federal estate
tax were repealed. We did not ask whether the attorneys
favored or opposed estate tax repeal … we felt that was not a
fair question. Still, we did ask whether the attorney had
contacted their congressman or senator regarding the issue.
Only 16 percent said they had. (We wondered whether, if
Congress were contemplating a legislative change that would
significantly impact other business owners, they might have
heard from more of them.) What about the future of estate
planning? More than three-fourths (76 percent) of our
respondents said they see significant estate planning
opportunities even if the federal estate tax is repealed.
Still, most said they would have to change their practice
focus to take advantage of these opportunities. Of respondents
who said they would change their practice focus:
• 80 percent said they would focus more on estate,
trust and probate administration;
• 63 percent said they
would focus more on probate avoidance planning;
• 48
percent said they would focus more on business/corporate
law;
• 38 percent said they would focus more on elder
law;
• 26 percent said they would focus more on
financial/investment planning; and
• 25 percent said they
would focus more on contested estate litigation.
Challenges
Because we
wanted to give the attorneys a chance to express their own
thoughts on these issues, we included two open-ended
questions. It was not necessary to respond to these questions
in order to continue through the survey, and not everyone
bothered to write comments. However, we did receive more than
200 free-form comments. Some were only a few words, some were
complete paragraphs, and even though our online form
restricted responses to 150 words, some attorneys found ways
to outsmart our software and submitted entire treatises on the
topics. Our first open-ended question, “Please explain your
major concerns (regarding repeal of the federal estate tax)”
elicited the most voluminous and vociferous responses. After
analyzing the responses, we categorized them into four major
areas of concern.
Motivation. Forty-eight percent of those commenting
listed a lack of motivation for clients to move forward with
their planning as a major concern for their practice. Said one
respondent: “While I do not expect complete repeal to be
likely, I do believe we will see a significant increase in
personal exemptions and/or rate reductions. My main concern is
that my rainbroker referral sources are largely tax-driven and
will no longer see the significant value of good estate
planning. We can talk all we want about personal goals, family
protections, etc., but it is the specter of the estate tax
which brings many of the wealthier clients to the door.”
Most respondents pointed out that, though estate tax
planning is only one aspect of comprehensive planning, it
often is the one that prompts clients to begin the process,
and keeps them motivated to see it through. One comment
illustrates this concern: “My main concern is that the estate
tax is the impetus that causes many people to get into the
attorney’s office to talk about creating an estate plan. It’s
a good hot-button issue. If the tax is repealed or phased out,
this will likely cause a false sense of security and the
feeling that no planning is now necessary. As we know this
couldn’t be further from the truth.”
Many respondents were concerned about how tax repeal
may be played in the popular press, to the ultimate detriment
of clients: “Any repeal, or phase-out, will be publicized as a
repeal and people who still need to plan will be lulled into
complacency thinking they need do nothing.” Another said, “I
know the reasons for estate planning other than estate taxes,
but the media will say there is no need for expensive planning
and it will take some time to re-educate the public and
referral sources on the issue.”
Clients often come to an attorney’s office because of
the referral of a financial or investment advisor. Some of our
respondents were concerned that these advisors may lose their
motivation to recommend comprehensive estate planning to their
clients: “Oftentimes the estate tax issue is the easiest for
referral sources to discuss and use to send referrals to my
office. Although I have positioned myself as a
relationship/issue-based trusts and estates attorney with my
referral sources, I still see them using the ‘tax scare’
technique to send a large portion of referrals my way.
Therefore, if the federal estate tax repeal occurs, my
referral sources, in the short-term, will have to be educated
to shift their focus away from the ‘easy’ tax issue to the
‘more difficult’ family issues.”
Revenue. Twenty-six percent of the comments included
references to concerns about reduced revenue. One blunt
respondent said his main concern was “poverty.” Several
respondents said estate tax repeal would result in fewer
clients seeking estate planning services, and thus a loss of
revenue, stating simply “client volume,” or “fewer clients.”
One explained: “The possibility of repeal has already
depressed the demand for our services. Actual repeal would
eliminate most of our business.”
Some were mainly concerned they would have to lower
their fees if they could no longer justify them with
corresponding tax savings: “I believe clients will still need
my services, but the perceived value of those services might
be less. If I am not saving them a lot of money with my work,
then they might feel that a large fee is not justified, and/or
they might feel comfortable going to someone with less
experience or doing the work themselves. I can probably
counteract this to some degree with educational marketing, but
it is still a significant possibility.”
Finally, several respondents pointed out that, in the
absence of federal estate and gift taxes, the higher-fee,
sophisticated tax-planning strategies will no longer be
necessary: “(Repeal) would eliminate a lot of the tax planning
that we do and thus reduce the value that we provide to
clients. Therefore, we would not be able to charge as much for
our services,” and “ (Repeal would) mitigate the need for
sophisticated planning, which will result in lost revenue.”
Said one respondent: “After 30 years in practice, I
believe (estate tax repeal) will be absolutely devastating,
and I am unsure how I will even earn a living, since I know
nothing else.”
Focus. Twenty percent of those commenting said their
main concern was a need to change the focus of their practice
— and their marketing messages — away from estate taxes and
toward other client concerns. Many respondents see this change
in focus as a positive, and perhaps long-overdue change to a
more client-centered practice: “It will require that I focus
on the core areas of client concern, namely, providing care
and guidance for future generations and preserving the
testator’s values, rather than avoidance of a patently unfair
tax,” and “A more personalized practice focused on ‘family
values’ and the ‘warm and fuzzies’ of estate planning will be
necessary.”
Though some see the focus away from estate taxes as
positive for the client, they are concerned about implementing
and communicating this new focus to potential clients and
their financial advisors: “It will be harder to motivate
clients to do the necessary planning when there are no threats
of large tax bills and monetary tax savings to demonstrate the
benefits. It will be a ‘harder sell’ and the focus will have
to change.”
Finally, many respondents stated they will have to
change their practice focus away from sophisticated tax
planning to include other, related services: “Well, 100
percent of my practice is estate planning. Therefore, I would
have to refocus within the field,” and “My main concern is
properly identifying and prioritizing the new needs my clients
will have after the tax is repealed.”
Others say they are concerned about the time and money
required to change their practice focus: “My main concern is
the substantial investment into new methods of tax planning…
including, but not limited to becoming more expert in capital
gains tax planning. Further adjustments will be necessary to
make me, as an estate planning attorney, stand out.”
Education. Thirteen percent of those responding said
their main concern was education — specifically educating
clients about the ongoing needs for estate planning beyond
federal estate taxes: “(My main concern is) educating clients
regarding the new horizon, pitfalls and opportunities,” and
“Estate tax repeal will likely lead to public perception that
no estate planning is necessary any longer — which is totally
misguided. The public has been misled by professionals for too
many years that estate planning is nothing more than estate
and gift tax planning.”
But, attorneys say that getting this new message across
may be difficult: “Most of my clients express to me that they
are planning to avoid the high costs associated with death and
asset transfer. While we know there are other reasons to plan,
the general public has not been educated sufficiently about
the non-tax reasons. To begin such an education program now
would look like sour grapes and in any event would take a long
time to sink in to the public at large.”
Opportunities
Despite the
challenges and concerns expressed in their answers, most
respondents remained “bullish” on the future of estate
planning. When asked if they saw significant estate planning
opportunities even if the federal estate tax is repealed, 76
percent said “Yes” and many of those took time to explain
themselves with well-reasoned commentary.
Where do attorneys say those planning opportunities
exist? Primarily in five general areas, the first being
“traditional” areas that many attorneys see as untouched by
estate tax repeal; and then in four new areas of opportunity
that they say are “created” (or enhanced) by repeal (or
reform).
Traditional planning continues. The attorneys point out
that much of the work they currently do for clients is
unrelated to the federal estate tax, and so will not be
affected by repeal. As one respondent said, “Planning
opportunities continue to exist with respect to business
continuation, charitable giving, planning with retirement
assets for transfers at death and special needs trusts.”
Other attorneys focus on the family issues of estate
planning, “Families will always have a need to assure
transfers are made according to their preferences. This
includes making sure succeeding generations are equipped to
receive their bounty. Clients also want to make sure their
family enjoys the fruits of their labor, not a judgment
creditor,” and “A different focus on family planning issues
relating to the transfer of wealth (i.e., protection of
spouses and beneficiaries, planning for second marriages and
blended families, ethical Wills, etc.) This will require
significant marketing efforts as many people perceive that
taxes are the primary reason to create an estate plan.”
One respondent succinctly said, “Opportunities? You
name it! Business succession planning, charitable estate
planning, special needs planning, it is all the same with the
exception of the tax question.”
New
opportunities.
• Income Tax
Planning. Twenty percent of those responding indicated that
income tax planning could become a bigger part of their
practice. One practitioner explained: “The repeal of estate
and gift taxes, whether or not carryover basis is substituted
for stepped-up basis, will provide new opportunities to avoid
state and local income taxes. I believe this will become a
significant new area of practice especially by using trusts in
jurisdictions that do not impose state income taxes on trust
income.”
• Reviews and revisions. Any major change in tax law
may prompt a need to review and revise current planning.
However, attorneys believe that repeal of the estate tax would
require massive client reviews and plan revisions: “I believe
that almost all client files will have to be reviewed to
determine what, if any, changes are needed to address the tax
law change.” While this may result in some initial activity,
most attorneys view this as only a short-term, transitional
issue: “There will be quite a bit of amending of trust work,
as well as helping/educating others of the true nature of
estate planning, but this is primarily temporary in the form
of updating existing tax-driven plans.”
• Asset protection and control. In the absence of
federal estate and gift taxes, about 12 percent of respondents
commented that their clients will have more planning options
to protect their assets from future creditors and to maintain
control over the distribution and use of those assets. One
respondent summed with this statement, “(The most significant
new opportunities after repeal are) asset protection and
control of assets for future generations.”
• Intestacy. One respondent took time to mention the
obvious, “I do suspect that we will start getting some pretty
good intestacy work because a lot of people will think that
they don’t have to do ANYTHING now.”
Conclusion
It is clear
from the survey results that attorneys expect a repeal of the
federal estate and gift taxes to have a significant impact on
their practices. Only one practitioner appeared fearless with
his statement, “Our practice will remain largely the same. Our
firm mission is to help our clients maintain control over
their affairs. Estate tax planning is a sub-issue. Repeal will
not affect us much at all.”
Still, most attorneys predict a decline in traditional
estate planning activity in the absence of federal estate
taxes as a motivating factor. It is reasonable to believe that
if one strong financial motivation is removed, certainly some
people will choose not to address the difficult and complex
emotional issues intrinsic to estate planning. Nonetheless, as
one respondent pointed out, “Congress cannot repeal death.
Until such time as they can, there will still be a need for
estate planning.”
While the vast majority of attorneys say they plan to
stay in the practice of estate planning, the question of
financial viability looms large. Certainly practice focus will
change. No doubt attorneys will feel a pressure to lower their
fees in the absence of sophisticated tax planning. What then,
will be the keys to maintaining a viable practice in this
area? The first step, of course, is to recognize the
challenges and develop a plan.
That plan should include steps to broaden the practice
focus beyond estate tax planning, to implement systems that
will make the practice more efficient and thus more profitable
under a constrained fee structure, and to make a strong
commitment to marketing and client education. Estate planning
has always been more about relationships and family issues
than about money and taxes… but we find it easier to talk
about money and taxes, to quantify them and illustrate them in
neat Powerpoint presentations. As one respondent said, we will
have to “shift focus away from the easy tax issue, to the more
difficult family issues.”
For full survey results, click here.
|
© 2002, PRIMEDIA Business
Magazines & Media Inc. All rights reserved. This article
is protected by United States copyright and other intellectual
property laws and may not be reproduced, rewritten,
distributed, redisseminated, transmitted, displayed, published
or broadcast, directly or indirectly, in any medium without
the prior written permission of PRIMEDIA Business Magazines
& Media Inc. |
|
|
|
| |
|
