Come gather ’round people/ Wherever you roam/
And admit that the waters/ Around you have grown . . .
For the times they are a-changin’
For those long-enough-in-the-tooth to remember, it is hard to believe that Bob Dylan wrote and released these iconic lyrics more than half-a-century ago. Beyond his concern for the social issues of that time, we recognize the underlying realty of constant change and the need for adjustment. And the Federal Tax Code is a prime example.
The possible changes in the tax-law bantered about in Washington may not be as broad in their reach as Dylan’s rising tide, but your ability to discuss the basics as well as the possibilities with any and all clients will solidify relationships and open the door to profitable sales.
For Example
The most talked about possibility is a dramatic reduction of the federal transfer tax lifetime exemption. In 2020 only 1/10 of 1% of decedents had to worry about federal estate taxes. But those deaths occurred when the lifetime exemption was a stratospheric (Is that even a word? Spell-check took it!) $11,580,000! But many of the deceased taxpayers left a surviving spouse where proper planning pushed any potential taxation to the second death. Also, many were the surviving spouse who had available their prior spouse’s unused lifetime exemption in addition to their own.
There are three reasons an insurance advisor must be familiar with federal estate and gift taxation when changes, even if only in the form of a lower exemption:
- As the exemption is lowered the number of clients vulnerable to taxes at death increases geometrically as the boundaries for a taxable estate descend into lower and more populated levels of taxpayer net worth.
- There is an increased possibility that a sizeable policy you are recommending may, itself, put the taxpayer in a potentially taxable situation at death (e.g. consider the 35-year-old who buys a $3,000,000 term policy to protect his/her family from the loss of a $100,000 income for the remaining 30-working-years till retirement).
- And even in the majority of cases where a taxpayer remains unaffected, an advisor needs to clearly and adequately reassure the client of his or her current non-taxable status.
The good news is that there are only about six tax concepts to discuss that will sufficiently educate clients and alert those vulnerable to the need to take steps before a law change occurs. And each can be explained in terms so uncomplicated that even an attorney can understand!
These will be discussed in full over the next few articles. So look for the first in the next, Income and Transfer Taxes: How the Feds Get Your Money When It’s Coming and Going! Again, to quote Nobel Laureate Dylan:
As the present now
Will later be past
The order is rapidly fadin’