Wednesday, January 13, 2010

The Estate Tax Vacation...Trouble Ahead

2010 is upon us. 2010: The year of ______. Obviously, that has yet to be determined. But there is one thing I'm pretty conifdent about. December 2010 will be the Month of Pulling the Plug on Grandma and Grandpa.

The Estate Tax has been repealed for 2010 (at least for now, see more below). The Estate Tax, also called the Death Tax, is a tax imposed, as you may have guessed, on the estates of people dying. In 2001, a plan to slowly reduce the Estate Tax was implemented so that by 2010 it would be completely phased out. However, it is set to pick back up again in 2011.

Therein lies the problem - come October, November, and oh-so-especially December of 2010, there will be some rich parents in poor health with some greedy children. The lack of estate tax + the return of the estate tax in 2011. Put it all together, and it's the perfect storm. Grandma and Grandpa are circling the drain, and you're going to tell their children that their $10 million estate will be worth $10 million if they die by December 31st, but will be worth less than $5 million dollars if they die on January 1st.

How is this a good idea? On the Things-That-Are-American List, being selfish and not caring about others, especially family members, ranks pretty high on the list. You might say, "well if someone is going to die soon anyway..." But with advances in science, who knows when someone is really "going to die soon anyway?" This is just going to expand that zone outwards. To children, more time in the hospital is already more bills to pay. You're telling them that more time in the hospital is ALSO gonna mean a whole lot LESS money coming to them eventually? Sounds like a recipe for disaster. It may sound horrible, but you know there's people like that out there. How can we ensure people will get the best possible medical care with such a large counter-incentive? We can't.

So here's the deal. If you are older, have a good amount of assets, and foresee any possible health problems in the next 12 months, and suspect your children might not actually be as perfect as you like to think they are, find someone to be your medical power of attorney who is NOT a beneficiary in your will. They'll make those decisions about giving you a shot without a boat-load of Benjamins breathing down their neck. That's my advice if you've lived a good life, but continue to keep living it into 2011.

Apparently, though, we might not even get there. There's a push not only to reinstate the estate tax, but also to apply it retroactively. So people who might think they struck it big suddenly get a $3 million tax bill. But it's ok. I'm sure that won't cause a flood of litigation or anything. Things will just work themselves out. They always do.

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