Tax Lawyer's Blog

Who would have ever predicted that Dr. Kevorkian (pictured) would become an estate tax planner?

Everyone knows that no estate tax will be levied on the estates of people who die in 2010, but unless Congress acts this year, the estate tax will return with a vengeance on January 1, 2011.

This has created an ugly planning scenario for terminally ill (and, perhaps, no so terminally ill) benefactors.

Laura Saunders and Mary Pilon of the The Wall Street Journal discuss the problem in a post titled Too Rich to Live:

It has come to this: Congress, quite by accident, is incentivizing death.

When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death’s door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit.

Now the situation has reversed: If Congress doesn’t change the law soon—and many experts think it won’t—the estate tax will come roaring back in 2011.

Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.

The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.

Of course, there is a “death incentive” whenever Congress raises the estate tax. But it hasn’t happened in decades; the top rate has held steady or fallen since 1942, according to tax historian Joseph Thorndike of Tax Analysts, a nonprofit group. In fact, the jump from zero to 55% would be “the largest increase in a major tax that we’ve ever seen,” Mr. Thorndike says.

Six notable people who died this year—possibly leaving behind tax-free estates for their heirs. Had they died next year, the result could have been far different.

 That possibility presents a bizarre menu of options for wealthy older people—and their heirs. Estate planning was never cheerful, but now it is getting downright macabre, at least for the tax averse.

“You don’t know whether to commit suicide or just go on living and working,” says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year.

Here is yet another example of why the very idea of taxing death is repugnant.

Rather than continually tinker with the estate tax, we should permanently repeal it for two reasons: 1) it forces people to make hideous decisions like the one Eugene Sukup must make; and 2) it unfairly subjects to a second tax wealth that has already been taxed once.

But, sadly, there will always be folks who salivate at the thought of seizing a rich cadaver’s wealth for redistribution as they in their infinite wisdom see fit.

These, I’m afraid, are the very same folks I wrote about in Case Closed: Trickle Down Policies Work.

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