“There’s talk of an iceberg!” That was the word that slowly spread out among the passengers and crew in the pre-Twitter days of the great ship Titanic. Many aboard had earlier felt the jolt on an otherwise smooth ride as the 900-foot, 47,000-ton vessel briskly carried them through the waters of the north Atlantic in the attempt on her maiden voyage to sail to America and back in a fortnight.
Well there is talk of an iceberg as well in the large-case life insurance marketplace. But to date it is only talk. Nonetheless the possibilities deserve some consideration.
In the Tax Plan portion of his campaign website Donald Trump indicated he would repeal the federal death tax. Some commentators since the election have declared the repeal almost a done deal. The concern is that elimination of the tax would kill one of the major needs for life insurance coverage, i.e. third-party ownership of policies whose death benefit could be used to inject liquidity into an estate to pay for unavoidable estate tax liability at death.
As with many things the rumors of the transfer tax’s death might be greatly exaggerated. Consider:
- The repeal of the tax without a filibuster requires 60 votes in the Senate. The new Congress will have only51 or 52 Republican senators. It will also have two independents who both lean philosophically toward the Democrat minority.
- So to avoid a filibuster on any tax law changes the Administration would need the support of some Democrat senators for whom repeal of the estate tax is less than acceptable. In the horse-trading that usually takes place estate tax repeal would probably be sacrificed in order to get support for other tax initiatives such as lower corporate or individual income tax rates which would create a broader and more far-reaching stimulation of the economy.
- Some suggest that repeal of the tax would be hampered by allegations from opponents that the act inappropriately benefitted the family of the billionaire president.
- And rather than a complete repeal, it would be too easy and more likely that modifications of the current law would assuage the current thirst for repeal – for the time being. Look possibly for proposed higher lifetime exemption amounts or lower tax rates.
`It’s too early to begin recommending that clients make major planning changes or modifying big case marketing efforts based on the speculation.
One of the big “what ifs” of the Titanic’s demise is would have resulted if such a radical attempt had not been made to steer clear of the iceberg. A head-on collision would have done much damage, but would not have caused the iceberg to rake along the vessel’s side causing leaks in enough segments of the ship’s compartmentalized hull allowing enough water to take her down.
And even if repeal comes, most scenarios suggest that the financial effect on estate taxation may not be all that dramatic and that the need for life insurance may not be significantly reduced. We will take a look at that in the next article.