From Tax-Favored to Tax-Penalized: The Challenge of Estate Planning for Qualified Plan Benefits in the Face of Shifting Federal Tax Policy

Lawyers face a difficult challenge in effectively planning for their clients\u27 estates in light of the constant shifts in federal tax policy. No area of tax law illustrates this challenge better than the law governing the estate taxation of qualified plan benefits. Even within a single tax act, the policy decisions often are inconsistent. In a recent law review article, Charles McLure described this phenomenon in the following manner: Even if Congress begins its deliberations with a menu of proposals that are defensible on policy grounds, at some point, the process is likely to become driven by revenue estimates, rather than by policy considerations. When this happens, proposals are adopted because they raise revenue, not because they make sense. 1 Since most of the tax acts throughout the 80s and 90s have been primarily concerned with raising revenue, these revenue-raising initiatives have produced an unusual amount of policy inconsistency and, indeed, contradiction in the sections which have been adopted