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A Good Year to Die

It’s been pointed out that George Steinbrenner’s heirs saved about $500 million in estate taxes because of the timing of his death. Unlike every other year since 1916, there is no federal estate tax in 2010. In 2009, the estate tax rate was 45% and next year, without Congressional action, it will be 55%. The one-year tax-free gap is the result of Congress’s refusal in 2001 and again now to make the Bush tax cuts permanent.

Something I haven’t seen pointed out – perhaps because most commentators have better taste than I – is that while fortuitous good timing is always welcome, enormous financial incentives to hasten the death of your wealthy relatives is not a good thing. I’m not saying that the death of four U.S. billionaires in the last five months is tied to the 2010 incentives, but it would be naive to think that the four billionaires and their heirs were unaware of the historic tax advantages of dying this year.

Did their awareness influence how aggressively the four elderly billionaires and their heirs sought medical treatment? We’ll likely never know. But it wouldn’t be the first time the threat of high taxation caused otherwise irrational distortions in decision-making. The fact that such ghoulish distortions are even a possibility is a good reason – among many – for Congress to act sooner rather than later to permanently eliminate or reduce the estate tax.

For more on the other good reasons, see here.

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