Making a Killing
by Judy Bachrach
JANUARY 19, 2010 TAGS:
It’s true! Starting now, it’s perfectly OK to drag Grandma out of her costly assisted living facility, throw her out in the cold and see if she’s as fragile as she has always pretended. The estate tax has vanished. Meaning (if you were nice to her up until her recent bout of pneumonia), pretty soon all she’s ever owned could be yours, with not a dime going to the federal government.
Once upon a time, meaning up until Dec. 31, the estate tax on any bequest worth up to $3.5 million from a loaded antecedent was: Zero. Anything above that sum was taxed at 45 percent. Thus, upon the demise of, say, some distant bachelor uncle or even a total stranger, a married couple could receive a total of $7 million, unearned, unjustified and untaxed.
This thrilling state of affairs has now been actually substantially improved, thanks to a bunch of (surprise!) squabbling legislators in Washington, D.C. In early December, the House of Representatives voted to extend that untaxed $3.5 million windfall along with the 45 percent tax on anything above that amount. But many Republicans, finding even this delightful bonanza far too punitive for heirs of the wealthy, preferred a $5 million exemption and only a 35 percent tax on the rest of the bequest. And a lot of those Republicans were in the Senate, which basically told the House to shove it. So: stasis. In other words, nothing you inherit will be taxed at 45 percent or even 35 percent. Not at the moment.
The result? That’s right! There are strategically inclined prosperous people all over America right now who – even if the Reaper declines to drop by -- are planning to lasso him in, according to the rich person’s confessional (aka The Wall Street Journal).
You and I might scoff at the notion of croaking just to oblige some shiftless acne-riddled younger relation. But the newspaper actually knows of a wealthy real estate entrepreneur on the very brink who postponed dying last year for that precise reason. And it also spoke to a Proskauer Rose attorney who said he had “an elderly infirm client” with an important question. Here it is:
Would “undergoing euthanasia [in 2010] … in Holland, where it’s legal … allow his estate to dodge the tax. His answer: Yes.”
In a way, though, one can understand the panic of the moneyed classes: The misery of the affluent has a long instructional history. As Charles Spencer. brother of the late Princess Diana, wrote in this month’s Vanity Fair (with what degree of personal anguish one can only presume to guess), just as the landed British aristocracy was starting to decline big-time and the estates of dukes and earls were crumbling fast, the British government trotted out the financial equivalent of the guillotine:
“In a grim pincer movement, taxation increased at the same time.… By 1939 [death duties] had reached 60 percent. In 1948 they were levied at 75 percent on estates valued at more than 1 million pounds (an equivalent at the time of $4 million). Socialist leaders had no time for deference and they ridiculed the dukes and lords who were viewed with hatred as withering as that recently reserved for the most venal hedge fund managers.”
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Imagine that. It turns out it’s nice not to be British and titled.
However, even if your richest relative decides to oblige you by keeling over this very minute, don’t count on getting every nickel. In a federal estate tax vacuum, the value of those assets would be set at the level at which they were long ago acquired, instead of the stepped-up level to fair market value at the date of death – an accounting trick which we all loved and enjoyed not only last year, but in previous ones as well. Which means, in effect, that if Grandma bought her four Palm Beach mansions for a song in 1940 but they’re all now worth millions upon millions, you (and an estimated 71,000 other heirs with shrewd antecedents) are going to be paying lots of capital gains taxes in 2010.
Here’s another problem for the wealthy: Just because the federal estate tax got poleaxed last year, doesn’t mean all 50 states are every bit as stupid as Congress. Their estate taxes haven’t evaporated.
And here’s a third. It’s widely expected that Congress, being the tricky body it is, will repent and pass some new estate tax – making it retroactive to Jan. 1. Of course you never know. You can never be 100 percent certain of anything.
But this much is sure. The Obama administration, what with its ruinous adventures in Afghanistan, and the high cost of proposed health care reform, will need cash. Lots of it. Do you honestly think it’s going to sit idly by and watch a major source of income – namely the resources of dead people who (in theory) cannot vote – dry up forever?
Once upon a time, meaning up until Dec. 31, the estate tax on any bequest worth up to $3.5 million from a loaded antecedent was: Zero. Anything above that sum was taxed at 45 percent. Thus, upon the demise of, say, some distant bachelor uncle or even a total stranger, a married couple could receive a total of $7 million, unearned, unjustified and untaxed.This thrilling state of affairs has now been actually substantially improved, thanks to a bunch of (surprise!) squabbling legislators in Washington, D.C. In early December, the House of Representatives voted to extend that untaxed $3.5 million windfall along with the 45 percent tax on anything above that amount. But many Republicans, finding even this delightful bonanza far too punitive for heirs of the wealthy, preferred a $5 million exemption and only a 35 percent tax on the rest of the bequest. And a lot of those Republicans were in the Senate, which basically told the House to shove it. So: stasis. In other words, nothing you inherit will be taxed at 45 percent or even 35 percent. Not at the moment.
The result? That’s right! There are strategically inclined prosperous people all over America right now who – even if the Reaper declines to drop by -- are planning to lasso him in, according to the rich person’s confessional (aka The Wall Street Journal).
You and I might scoff at the notion of croaking just to oblige some shiftless acne-riddled younger relation. But the newspaper actually knows of a wealthy real estate entrepreneur on the very brink who postponed dying last year for that precise reason. And it also spoke to a Proskauer Rose attorney who said he had “an elderly infirm client” with an important question. Here it is:
Would “undergoing euthanasia [in 2010] … in Holland, where it’s legal … allow his estate to dodge the tax. His answer: Yes.”
In a way, though, one can understand the panic of the moneyed classes: The misery of the affluent has a long instructional history. As Charles Spencer. brother of the late Princess Diana, wrote in this month’s Vanity Fair (with what degree of personal anguish one can only presume to guess), just as the landed British aristocracy was starting to decline big-time and the estates of dukes and earls were crumbling fast, the British government trotted out the financial equivalent of the guillotine:
“In a grim pincer movement, taxation increased at the same time.… By 1939 [death duties] had reached 60 percent. In 1948 they were levied at 75 percent on estates valued at more than 1 million pounds (an equivalent at the time of $4 million). Socialist leaders had no time for deference and they ridiculed the dukes and lords who were viewed with hatred as withering as that recently reserved for the most venal hedge fund managers.”
Imagine that. It turns out it’s nice not to be British and titled.However, even if your richest relative decides to oblige you by keeling over this very minute, don’t count on getting every nickel. In a federal estate tax vacuum, the value of those assets would be set at the level at which they were long ago acquired, instead of the stepped-up level to fair market value at the date of death – an accounting trick which we all loved and enjoyed not only last year, but in previous ones as well. Which means, in effect, that if Grandma bought her four Palm Beach mansions for a song in 1940 but they’re all now worth millions upon millions, you (and an estimated 71,000 other heirs with shrewd antecedents) are going to be paying lots of capital gains taxes in 2010.
Here’s another problem for the wealthy: Just because the federal estate tax got poleaxed last year, doesn’t mean all 50 states are every bit as stupid as Congress. Their estate taxes haven’t evaporated.
And here’s a third. It’s widely expected that Congress, being the tricky body it is, will repent and pass some new estate tax – making it retroactive to Jan. 1. Of course you never know. You can never be 100 percent certain of anything.
But this much is sure. The Obama administration, what with its ruinous adventures in Afghanistan, and the high cost of proposed health care reform, will need cash. Lots of it. Do you honestly think it’s going to sit idly by and watch a major source of income – namely the resources of dead people who (in theory) cannot vote – dry up forever?
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