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Lack of Estate Tax in 2010: Now Cheaper to Die?

Well, 2010 has arrived -- and because Congress devoted so much effort toward health care reform, we may have ourselves some death panels after all.

While critics have dismissed Sarah Palin's "death panels" to dole out medical care as fiction, a tax loophole may in fact give the heirs of some wealthy people a financial incentive to make this new year their loved one's last.

In 2001, then-President George W. Bush signed a law designed to phase out the estate tax -- a tax on the assets a deceased individual leaves behind. The law reduced the amount wealthy families were taxed after death starting in 2001 -- leading to complete abolition of the tax in 2010, but at the same time it concerned some because of the financial implications of the date when someone died.

For example, a wealthy person who dies on January 1, 2011, and left her heirs $10 million would really be leaving them $5.05 million because of taxes. If they died a day earlier (assuming no changes were made in tax laws), the heirs could receive the full $10 million.

Nobel prize-winning economist Paul Krugman appears to be the first to explain the potential pitfall for some elderly individuals, writing in May 2001 in the New York Times that it should have been called the "Throw Momma From the Train Act of 2001." More . . .

Since then other economists have noted the impact tax changes might bring, including bestselling authors Steven Levitt and Stephen Dubner, who wrote in SuperFreakonomics that it would mean heirs would want their benefactors to make it to 2010, but not beyond.

"With this incentive, it's not hard to imagine such heirs giving their parent the best medical care money could buy, at least through the end of the year. Indeed, two Australian scholars found that when their nation abolished its inheritance tax in 1979, a disproportionately high number of people died in the week after the abolition as compared with the week before," they wrote.

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LOL.. Too bad people cannot pick their exit date quite so easily.


-- Edited by Sanders on Saturday 2nd of January 2010 11:16:30 AM