Thursday, December 31, 2009

Death and Taxes

This morning I met with one of the estate planning attorney's my firm frequently works with and he brought up some of the moral dilemmas that could potentially face planners and families in the coming year.

Without further legislation, there will be no estate tax in 2010. The estate tax can erase nearly half of a wealthy person's estate, so for some time, the joke has been that 2010 is the time people should try to die. For families facing end-of-life decisions, the temporary elimination of the estate tax makes one of life's most trying episodes even tougher.

What if an individual recently suffered a health setback that put them on life support, and their health care power of attorney clearly states that they do not wish to be kept alive in such circumstances? Should the individual with powers of attorney carry out the individuals wishes, or should they keep the individual alive just one more day to avoid estate tax implications?

What if we make it through 2010 without any additional legislation, which would mean that the amount excluded from the estate tax would drop all the way down to $1 million in 2011 (the exclusion amount in 2009 was $3.5 million)? Will people responsible for wealthy individuals who are clearly near death chose to take measures to ensure death in 2010 to avoid hefty estate taxes?

To avoid these difficulties, some individuals are putting provisions into their health-care proxies allowing whoever makes end-of-life medical decisions to consider changes in estate-tax law. Speaking to your estate planner may help save your family from making some of these difficult decisions during such a trying period.

3 comments:

Dan Griffin said...

It should be worth noting that congress has the power and routinely uses it in cases like this to make taxes retroactive. I'd say that is definitely likely in this estate tax situation.

Lon Jefferies, MBA, Independent Financial Planner and Fiduciary said...

Dan,

Great comment, and thanks for contributing. Congress would have the ability to make estate tax laws retroactive to the beginning of the year. However, whether that would withstand a Supreme Court challenge is a subject of debate amongst estate attorneys. Time will tell...

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