Why estate tax lawyers are scrambling for work
A fascinating story in last Friday鈥檚听Wall Street Journal听听what I suppose was an inevitable trend: With the estate tax exemption now up to $5.25 million ($10.5 million for couples) estate tax听lawyers are running out of work. So, writes the听闯辞耻谤苍补濒鈥檚听Arden Dale, they听are turning to听income tax planning for high-net worth clients.
The Tax Policy Center听听that this year only 3,780 estates will have assets exceeding $5 million and barely 2,000 of those will have $10 million or more. Since it is likely that most people with听estates of this size have already done their tax planning, there is just not going to be a lot of new business out there.
Of course, some states have lower thresholds that will keep estate tax attorneys busy. And the wealthy have reasons other than听than pure tax savings听to do estate planning. But still, what鈥檚 a lawyer to do? Some are even urging clients to unwind their trusts.听
Dale finds that some have turned to another form of tax planning鈥攆inding ways for rich clients to shuffle money to relatives with the aim of reducing income tax liability. As Dale notes, this sort of asset shifting is much simpler than the complex world of trusts.
For instance, a high tax-bracket parent could听lend money to a lower-bracket child at today鈥檚 very low interest rates. The child could invest the funds and live off capital gains, dividends, and interest but the parent would get the inital loan听back. 听Or, a wealthy client can maximize contributions to retirement plans such as 401(k)s and Roth IRAs since distributions from those accounts are not subject to the new 3.8 percent investment tax that was enacted as part of the 2010 Affordable Care Act.
There is nothing new about wealthy people hiring lawyers to help them reduce their听income taxes.听For years, they鈥檝e been turning ordinary income into capital gains, deferring income, or shifting income offshore in order to lower听their taxes. 听听听
But it is interesting that, as the estate tax exemption has steadily increased (under a Democratic president of all things), estate tax lawyers are scrambling for work. With both income tax rates and estate tax exemptions rising it is hardly surprising that enterprising tax lawyers will follow Willie Sutton鈥檚 timeless advice and go where the money is. 听 听 听 听
