By: Trevor Kosmo
On February 23, 2011, The Wealth Strategies Journal sponsored a panel discussion at the offices of Bernstein Global Wealth Management in Washington, D.C. which featured a group of prominent estate planning lawyers and tax professionals who discussed their estate planning predictions for 2011 and 2012, the future of estate planning as a profession, and their investment predictions in coming years. The panel featured David Greene, Vice President and Financial Adviser at Bernstein; Tom Cholis, Managing Director of Chevy Chase Wealth Management; and Jeanne Newlon, an estate planning lawyer and Partner at Venable LLP in Washington, D.C., and was moderated by Lew Saret, the Co-General Editor of the Wealth Strategies Journal.
Future Prospects for Estate Planning
The 2010 Tax Act makes 2011 and 2012 exciting years for individuals currently planning their estates. However, the Act's temporary nature will provide for uncertain times for estate planning professionals in years to come, the panelists suggested.
Jeanne Newlon suggested that, in 2011 and 2012, estate planning lawyers should encourage clients to take advantage of the $5 million gift and GST exemption by making gifts to future generations to the greatest extent possible. Mr. Cholis echoed this sentiment, noting, however, that clients are often hesitant or unwilling to transfer large amounts of money to future generations.
Beyond 2012, the panelists agreed that that estate planning prospects remain less clear. While experts and laypeople alike have offered predictions for how the Obama administration and Congress will manage the federal estate tax after 2012, nobody can make forecasts with 100% confidence. Ms. Newlon, however, thinks that the estate tax is unlikely to be completely repealed. Noting the federal government's revenue loss in 2010 due to the lifting of the tax, she contended that such a repeal could be seen as fiscally irresponsible
However, what if the estate tax is in fact repealed in 2012? What will estate lawyers do for a living? Ms. Newlon thinks that there will still be a need for estate lawyers, as clients still will want to establish trusts. However, a decreased demand in estate tax planning services will make the profession smaller than it currently is.
Lew Saret echoed this sentiment in comments after the conclusion of the panel discussion, suggesting that within the next 20 years, most estate planning will be done over the web. He believes that clients who fall into the "mass affluent" category will be able to go to a website where an "avatar" will ask the same types of questions that estate planning lawyers might ask in an initial client conference, and then generate estate planning documents for that client. Because many companies could offer this service, the work will not go to law firms, or at least not a law firm in the form that it exists today. However, Saret imagines that very high net worth families, (e.g., Bill Gates and Mark Zuckerberg-type individuals) will still use law firms. And, although there may be some increase in demand due to population growth, overall he envisions a substantial decrease in demand for estate planning legal services. Lew pointed to the New York Times article Armies of Expensive Lawyers, Replaced by Cheaper Software to substantiate his forecast.
On the other hand, Tom Cholis does not see tremendous change in the profession. He cited an article entitled The Outlook for Estate Planning Practitioners in the Wealth Strategies Journal in which attorney William A. Conway writes that the estate planning industry is actually poised for growth.
"Conway notes that in a recent survey of 831 estate planning attorneys, 46% experienced an increase in business during 2010. Likewise, the survey states that 49% of estate planning attorneys surveyed expect business to increase 20% or more over the next five years. Both of these figures are more optimistic than those in the previous year's survey. Most of those surveyed believe that the aging baby boomer population is the primary reason for the anticipated growth. In anticipation of this growth, most of those surveyed plan to strengthen their referral networks," explained Cholis.
While the future of estate planning as a profession remains either bright or grim depending on who you ask, it ultimately depends on the actions that Congress and the Obama administration take in 2012 with regard to the federal estate tax.
Predictions on Inflation, Gold and Municipal Bonds
Meanwhile, Dave Greene volunteered several comments on inflation, interest rates, gold, and municipal bonds, drawn from the firm's deep research in these areas.
Greene observed that a large domestic deficit and unprecedented monetary expansion on behalf of central banks around the world has spurred concerns about inflation--and even talk of hyperinflation--in the media. While it is very difficult to predict whether there will be inflation in the near term, clients who are spending from their portfolios and have inflation-linked liabilities should consider including a component of inflation protected bonds and real assets in their asset allocations. Gold alone should not be viewed as a reliable hedge against inflation as it has a long record of performing both well and poorly during inflation spikes. Moreover, at a current market price of over $1400 per ounce (as of 3/18/2011), the price of gold is significantly higher than the cost of producing it, which ranges between $400 and $900 an ounce depending on the producer or region.
Greene also commented on the municipal bond market, where he discounts talk of rampant defaults popular in the media. Still, states and municipalities are having to face difficult decisions, and a critical component for any municipal bond portfolio is careful credit research on each municipality that is owned in the portfolio. When considering general obligation bonds, along with the headwinds many entities face it is important to remember that many municipalities have been cutting costs and tax revenues have generally begun to increase. Another important consideration is the funding status of state and local pensions and a clear understanding of how each local entity is approaching these long term liabilities. Finally, revenue bonds can be an attractive component of a diversified municipal bond portfolio because the bonds are backed by. income derived from essential municipal services such as sewer and toll roads. With deep research and a focus on high credit quality, municipal bonds should remain an important portfolio component for many investors.