Beth Kaufman Comments on the State of the Estate Tax

Financial Advisor IQ

Caplin & Drysdale President Beth Shapiro Kaufman spoke with Bruce Love, Managing Editor of Financial Advisor IQ, during the Investment Management Consultants Association (IMCA) conference on February 1, 2016. Below is a transcript of the interview where Ms. Kaufman gives her perspective on the state of the estate tax and how wealth management advisers can best serve their clients. To view the full transcript, please visit Financial Advisor IQ's website.

BRUCE LOVE, MANAGING EDITOR, FINANCIAL ADVISOR IQ: Hi. This is Bruce Love with Financial Advisor IQ. I'm here at the IMCA Conference in New York and I'm talking to Beth Kaufman from Caplin and Drysdale, the law firm.

Beth, what's going on in estate planning at the moment that advisors should be aware of?

BETH KAUFMAN, PRESIDENT, CAPLIN & DRYSDALE: Well, there have been some changes in the last decade that, and even in the last couple of years, that have really changed the perspective on estate planning. And the major thing that's happened is the exemption from the federal estate tax has gone way up, so that now every person's got an exemption of $5.45 million, or if you're dealing with a couple, $10.9 million dollars that they can pass to their family without payment of any federal estate tax.

So a lot of people who really had to do estate tax focused estate planning are now off the hook on that and they can consider other issues. So we get back more to basics and what do people really want to do with their money. And also, a certain amount of additional income tax planning, where we were more focused before on estate tax planning.

BRUCE LOVE: So with the gifting, that's over the course of a lifetime, I guess. So you need to really make sure that you're keeping track of that, is that right?

BETH KAUFMAN: Yes, you do. So the exemption applies to your lifetime gifts. And whatever you don't use during a lifetime remains to be used at death.

BRUCE LOVE: OK. And what are you telling advisors to do with their clients at the moment, as far as should they be looking at lawyers to redo wills, or just keep an eye on things?

BETH KAUFMAN: Well, there's certainly some planning that we used to do to take advantage of lower exemptions that isn't necessary anymore. And to the extent the some clients prefer not to have trusts if they don't need them, there are some estate plans that should be redone.

But in addition to that, and we haven't really touched yet on the higher net worth people, there are still a good number of people who require planning from an estate tax perspective. There are many states that still impose an estate tax that can be planned for. And so there remain a lot of issues that we can address through estate planning.

BRUCE LOVE: So what are the issues that come into play for ultra high net worth individuals?

BETH KAUFMAN: The issue is always trying to reduce estate tax. And we have many ways of doing that, some of which involve making gifts early and often. But one thing you need to look out for when you're making lifetime gifts is are you trading off a capital gains tax for an estate tax? And so it's an important part of the analysis to see what is the basis in the asset that I'm thinking of gifting, and is it really a good deal to get it out of my estate early, if that means foregoing a step up in basis?

And then there's some techniques that we use that leverage the exemption, such as grantor retained annuity trusts and sales to grantor trusts and the like that allow you to leverage the exemption and get more assets out of the estate for your exemption dollar.

BRUCE LOVE: Are they hard for financial advisors to come to grips with, these sorts of differentiations? I guess they need to work closely with their estate and trust lawyers.

BETH KAUFMAN: You really need a team. And a nice team would be the financial advisor, the CPA, and the estate lawyer.

BRUCE LOVE: And do you think they should be working together just around tax time, or should they be talking during the year?

BETH KAUFMAN: Ideally, it's nice if you can get the client to hold an annual meeting with the three advisors at the table. And you can go over the current circumstances, see where they are in terms of how much exemption they've used up, and make plans for the coming year.

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