Wednesday, December 30, 2009
Front page article in today's Wall Street Journal, Rich Cling to Life to Beat Tax Man:
Nothing's certain except death and taxes -- but a temporary lapse in the estate tax is causing a few wealthy Americans to try to bend those rules.
Starting Jan. 1, the estate tax -- which can erase nearly half of a wealthy person's estate -- goes away for a year. For families facing end-of-life decisions in the immediate future, the change is making one of life's most trying episodes only more complex.
"I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days," says Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York. "Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?"
Currently, the tax applies to about 5,500 taxpayers a year. So, on average, at least 15 people die every day whose estates would benefit from the the tax's lapse. ...
To make it easier on their heirs, some clients are putting provisions into their health-care proxies allowing whoever makes end-of-life medical decisions to consider changes in estate-tax law. "We have done this at least a dozen times, and have gotten more calls recently," says Andrew Katzenstein, a lawyer with Proskauer Rose LLP in Los Angeles. ...
Estate-tax experts didn't expect Congress to allow the tax to lapse, and are flabbergasted that it is actually happening. ... "If Congress couldn't do it this year, why will they be able to do it next year?" says Prof. Michael Graetz of Columbia University, who worked both at Treasury and for Congress. He calls the lapse "congressional malpractice." ...
The looming lapse of the estate tax is presenting some families with unprecedented ethical quandaries. "I've been practicing for more than 30 years, and never has the timing of death made such a financial difference," says Dennis Belcher, president of the American College of Trust and Estate Counsel. "People have a hard enough time talking about death and addressing estate planning without this." ...
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.
The otherwise excellent article contains this serious misstatement of the law:
[E]state planning in 2010 will be complicated by a new twist: a complex tax on capital gains, levied at death, that will affect a broader swath of taxpayers.
Of course, there is no Canadian-style capital gains tax at death. Instead, during the period of estate tax repeal (if the estate tax is not retroactively reinstated), the heirs will take a carryover basis in any inherited property, with any capital gains tax deferred until the property is sold by the heirs. (Hat Tip: Scott Meyer.)
Update: The Wall Street Journal today printed a "Correction & Amplification":
(Hat Tip: Hani Sarji.)
Estate planning in 2010 will be complicated by a capital-gains tax that replaces the estate tax. A Wednesday front-page article about a temporary lapse in the estate tax incorrectly stated that the gains tax would be levied at death.