California Abandons Plans To Tax Estate Planning As A Luxury Service Hot

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The California Assembly has been reviewing revisions to the state civil code that would tax various "specified services."


The list of services in question reveals that this is essentially a luxury tax intended to pull revenue out of rich families spending money on non-essential services.


The list starts with "yacht and boat repair" and until Monday it ended with "high-net-worth estate planning," with limousine rental, astrologers, masseurs, private tutors, and party planners also featuring prominently.


The independent broker-dealer advocates at the Financial Services Institute took exception to being lumpd in with palm readers and lobbied to get estate planning pulled from the list.


FSI pointed out that first, "high-net-worth estate planning" is a vague term.


Second, estate planning is a good and sensible thing for wealthy families to spend their money on. It helps them plan for the future. It should ultimately save them money.


This is a fine point that exposes some fundamental questions about the way the advisory profession has evolved.


Does estate planning only count as a necessary service if it helps the middle class write a will and power of attorney?


At what point does the offering become a luxury?


Would it make sense to tax high-end investment management and accounting services as well?


Is a financial plan a luxury for the rich, or a necessity for everyone else? 


California lawmakers automatically lumped "high-net-worth" advice in with the luxuries. 


A better way to approach the issue might have been to recognize the power of high-end advice to make and save money for already-rich clients. Treat a proposed "advice tax" on the model of capital gains.


Or better yet, recognize that the wealthy already pay more in capital gains and that money advisors make their clients will be reabsorbed by the state in that form.


California, interestingly enough, taxes capital gains as ordinary income, so the wealthy already pay more.

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