President George W. Bush’s tax cut plan, which was recently introduced in Congress, includes a gift and estate tax repeal that has some planners and charities worried. Estate planners fear that their current and future clients will neglect to plan without the added urgency of death tax avoidance, and charities worry that without the incentive of the gift and estate tax charitable deduction, would-be philanthropists won’t bother to make charitable bequests. 

But are these fears realistic? The January 2001 issue of Trusts & Estates Magazine presents several articles that attempt to answer this question. 

In "Two Unavoidable and Prominent Concerns for 2001 and Beyond," Roy M. Adams sides with those who believe the elimination of the transfer tax system will provide "more and plentiful opportunities for planning," though "clients and customers could go through a period in which they conclude there is no longer any need for estate planning. If that is the case," Adams argues, "they will eventually recover from that incorrect conclusion to their betterment and the betterment of the professionals who serve them, including attorneys, accountants, financial planners, trust officers, insurance professionals, and others in the investment community."

Al W. King III, in "Death Tax Uncertainty Makes Flexible and Family Value Estate Planning More Important than Ever," explains that the death tax was enacted and repealed three times before being enacted in its present form in 1916. If it is repealed this year, taxpayers should view it as "a great opportunity to do estate planning. There would be less estate and gift tax consequences associated with both contributions and distributions from trusts. Consequently, many families would find trusts extremely beneficial for non-tax reasons as well as protecting against possible reinstatement of the estate tax in the unlikely event of a phase-out or repeal." Also, and perhaps more importantly, wealthy individuals tend to be more concerned with controlling their families’ inheritances than with avoiding estate taxes.

As for the effect repeal might have on charitable giving, Jeff Comfort and Charles D. Fox IV argue it should have little impact in this area. In "Déjà vu All Over Again: Gift Planning 2001," Comfort argues that "in the last decade of the twentieth century, there is some evidence of a trend back toward personal humanitarianism, and this humanitarianism . . . will always outweigh any economic trends or legislation."

Some of the authors disagree on the effects and probability of transfer tax repeal or phase-out, but most agree that the present uncertainty of the tax’s future will almost certainly be detrimental both to professionals in estate planning and to charitable organizations. As Comfort puts it: "It is only the possibility of uncertainty in economic direction that could put major planned gifts on hold."

Perhaps this uncertainty has already caused some individuals to postpone estate planning and charitable giving. Regardless of the outcome, it is the responsibility of the professionals in the industry to educate themselves and their clients on the benefits of flexible planning in the face of change.