New Year brings life and death tax decisions

As of yesterday, the first day of 2010, the death tax — which can erase nearly half of a wealthy person’s estate when he or she passes away — has disappeared for one year.  According to an article printed in the Wall Street Journal, this change has made trying times all the more difficult for families facing end-of-life decisions.  In the days leading up to the New Year, Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York, explained the added burden that the law change has placed upon families:  

I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days.  Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?

This unique situation is the result of legislation passed in 2001 which raised death tax exemptions and culminated with the elimination of the tax in 2010.  Congress, however, did not make the removal of the tax permanent and thus, the death tax will be re-instated in 2011 at a higher rate with fewer exemptions. 

Under current laws in effect until the end of [2009], the size of the exemption is $3.5 million per individual or up to $7 million per couple. The tax is slated to disappear entirely on Jan 1 [of 2010].

But estate planning in 2010 will be complicated by a new twist: a complex tax on capital gains that will affect a broader swath of taxpayers. The estate tax is scheduled to return in 2011 at a 55% rate with an exemption of slightly more than $1 million.

Many expected lawmakers to address this lapse before it went into effect but with recent attention focused on the $2.5 trillion healthcare nightmare and the job-killing cap and trade bill, congressional leaders missed their opportunity to adjust the law.  Now, some worry that Congress will be unable to address the issue next year as well.  Columbia University’s Michael Graetz, who worked at both the Treasury and for Congress, calls the lapse “congressional malpractice” and wonders:

If Congress couldn’t do it this year, why will they be able to do it next year?

But, whether or not Congress will be able to address the death tax next year is irrelevant to patients and families who currently face end-of-life decisions.  The Journal article makes note of one terminally ill real-estate entrepreneur who was determined to live until the law changed.  According to his lawyer:

Whenever he wakes up, he says: “What day is it? Is it Jan. 1 yet?”

It also reveals just how far some patients are willing to go to avoid the tax:

The situation is causing at least one person to add the prospect of euthanasia to his estate-planning mix, according to Mr. Katzenstein of Proskauer Rose.  An elderly, infirm client of his recently asked whether undergoing euthanasia next year in Holland, where it’s legal, might allow his estate to dodge the tax.

His answer: Yes.

These horrifying decisions that hurt families and place fear above freedom could be avoided if Congress would just make its repeal of the death tax permanent.  FreedomWorks has always stood in firm opposition to the death tax because it unfairly punishes the American values of saving and investment by penalizing individuals for passing property along to their family. 

If Congress does revisit death tax legislation in 2010, it should eliminate it entirely and restore America’s faith in the benefits of hard work and investment. 


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