Executor of the Estate

Print Friendly, PDF & Email

The estate tax is unfair and counterproductive in several ways. Here I focus on only one of them.

The Bush tax-cut laws made the estate tax less predatory year by year until it finally vanished in 2010. In 2011, however, it automatically returns in full viciousness, with a tax-exempt ceiling of only $1 million and rates ranging up to 55%. It returns that way unless Congress changes the law. But will it? That uncertainty complicates personal planning, and in a macabre way.

My own case illustrates the issue. I am 85 years old, have the health problems and life expectancy one might expect, am unmarried, have adequate annuity income, and have a net worth of around $3.5 to $4 million. My will divides my estate among about a dozen people. Whether Congress rectifies the estate tax obviously affects whether my living beyond tax-free 2010 is worthwhile for me and my heirs.

A polite answer from heirs in such a case is that having me alive for a few more months or years is worth more than the additional $50,000 (say) that each would receive ($600,000 in total) if I died before 2011. In line with the economic principle of marginalism, the issue is not an all-or-nothing choice between longer life and more money left for the heirs; the issue is how much of the one is worth sacrificing for how much of the other. Suppose the extra life is 12 hours (I don’t assume any still shorter period, to bypass any question about whether death occurred on December 31 or January 1). Is 12 more hours of life worth the lost $50,000 per heir? Almost surely not, says my strong intuition. What, then, about the tradeoff between the $50,000 per heir and an additional week or six months or even three years of life (especially if I would not enjoy those additional years)?

Here another economic principle comes into play: people’s response to incentives. The incentive to shorten life for financial advantage may be very weak in most cases, but its direction can hardly be doubted.

With these issues in mind, I wrote my congressman and senators asking each for his best estimate of the likelihood that Congress would remedy the tax situation before the end of 2010. All three responded thoughtfully, with more than mere boilerplate. They expressed sympathy with my concern, but none ventured an actual estimate of the likelihood. I got the impression that I should indeed prepare for the return of the estate tax.

The uncertainty remains. If the law is not rectified, it will be ghoulishly interesting to see whether unusually many suicides and murders disguised as accidents and sudden illnesses occur toward the end of 2010. (And there are ways of hastening one’s own death short of actual suicide.) Of course, statistics on deaths so classified are not available, but econometricians might be able to make inferences from figures of deaths classified by age, apparent cause, calendar date, wealth, bequests of the decedent, and so forth. Similarly, it might be possible to make inferences about people near death toward the end of 2009 who heroically held on until January 2010 (when, by current law, the estate tax vanished, for this one year). These questions might form a dissertation topic for a Ph.D. candidate

Leave a Reply

Your email address will not be published. Required fields are marked *