Repeal of Estate Tax Causes Ethical Quandary

NB: This article was published on January 1, 2010 and contains information that may be outdated. For current information regarding the estate tax, read: Estate Tax Certainty…For Now.

An article in the Wall Street Journal highlights the ethical quandary created by the temporary repeal of the estate tax.

In 2009, those with estates valued over $3.5 million were subject to an estate tax of up to 45 percent. Congress was expected to act in 2009 to extend the 2009 tax rate and exemption amount, but did not.

Because of the temporary repeal, those who die between January 1 and December 31 of 2010 will be able to pass their estates without any estate tax liability. But unless Congress acts in 2010, estates valued at over $1 million will be subject to estate tax of up to 55% starting on January 1, 2011.

Most Americans have not amassed the wealth necessary to be exposed to federal estate taxes. But for about 5,500 taxpayers each year whose estates are large enough, the repeal can potentially save hundreds of thousands, and even millions of dollars in estate taxes.

And this has caused some to make medical decisions based on potential tax savings. For example, there is evidently at least one individual who is considering undergoing euthanasia during 2010 in Holland, where it is legal,to avoid having his estate taxed.

Additionally, the article quotes a lawyer who reveals that he had two clients on life support whose families struggled with whether to continue heroic life-saving measures until January 1. “Do they want to live for the rest of their lives having made serious medical decisions based on estate tax law?” he asked.

To avoid the ethical dilemma these families are facing, some wealthy individuals are even encouraging their loved ones to consider estate tax law when making end-of-life decisions by including provisions in their medical power of attorneys to that effect.

Congress could pass an estate tax law next year, and precedent does exist to make it retroactive to January 1. But expect a constitutional challenge by those who have a lot to lose by retroactive application of any new estate tax law.

And to think, this whole mess could have been avoided if Congress had acted in a timely fashion.