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Rich Cling to Life to Beat Tax Man

prima donna
12-31-2009, 02:31 PM
DECEMBER 30, 2009 Rich Cling to Life to Beat Tax Man


(See Corrections & Amplifications item below (http://online.wsj.com/article/SB126213588339309657.html#CX).)
Nothing's certain except death and taxes -- but a temporary lapse in the estate tax is causing a few wealthy Americans to try to bend those rules.
Starting Jan. 1, the estate tax -- which can erase nearly half of a wealthy person's estate -- goes away for a year. For families facing end-of-life decisions in the immediate future, the change is making one of life's most trying episodes only more complex.
On Jan. 1, the one-year halt to the estate tax begins. And never before has so much money hinged on the time of death, WSJ's Laura Saunders reports in a News Hub extra.


"I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days," says Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York. "Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?"
Currently, the tax applies to about 5,500 taxpayers a year. So, on average, at least 15 people die every day whose estates would benefit from the the tax's lapse.
The macabre situation stems from 2001, when Congress raised estate-tax exemptions, culminating with the tax's disappearance next year. However, due to budget constraints, lawmakers didn't make the change permanent. So the estate tax is due to come back to life in 2011 -- at a higher rate and lower exemption.
To make it easier on their heirs, some clients are putting provisions into their health-care ******* allowing whoever makes end-of-life medical decisions to consider changes in estate-tax law. "We have done this at least a dozen times, and have gotten more calls recently," says Andrew Katzenstein, a lawyer with Proskauer Rose LLP in Los Angeles.
Of course, plenty of taxpayers themselves are eager to live to see the new year. One wealthy, terminally ill real-estate entrepreneur has told his doctors he is determined to live until the law changes.
"Whenever he wakes up," says his lawyer, "He says: 'What day is it? Is it Jan. 1 yet?'"
Estate-tax experts didn't expect Congress to allow the tax to lapse, and are flabbergasted that it is actually happening. "All fall when I gave speeches, I said I was willing to bet anyone in the room $10 that we would have an estate-tax extension by the end of the year," says Thomas Ochsenschlager, head of taxes for the American Institute of CPAs. "Thank goodness I didn't have any takers," he says.
Now, all bets are off. "If Congress couldn't do it this year, why will they be able to do it next year?" says Prof. Michael Graetz of Columbia University, who worked both at Treasury and for Congress. He calls the lapse "congressional malpractice."
Under current laws in effect until the end of this year, the size of the exemption is $3.5 million per individual or up to $7 million per couple. The tax is slated to disappear entirely on Jan 1.
But estate planning in 2010 will be complicated by a new twist: a complex tax on capital gains that will affect a broader swath of taxpayers. The estate tax is scheduled to return in 2011 at a 55% rate with an exemption of slightly more than $1 million.
The looming lapse of the estate tax is presenting some families with unprecedented ethical quandaries.
"I've been practicing for more than 30 years, and never has the timing of death made such a financial difference," says Dennis Belcher, president of the American College of Trust and Estate Counsel. "People have a hard enough time talking about death and addressing estate planning without this."
Congress could pass an estate tax next year and make it retroactive to Jan. 1. Whether that would withstand a court challenge is a subject of debate in the estate-planning world. In the past, when Congress has passed retroactive laws, congressional leaders often issued formal statements of intent in advance.
That hasn't happened this time. The main statement has been a verbal one by Senator Max Baucus (D., Mont.) on the floor of the Senate, not a joint declaration by leaders from both parties.
Journal Community (http://online.wsj.com/community)

discuss (http://online.wsj.com/article/SB126213588339309657.html?mod=WSJ_hps_LEFTWhatsNew s#articleTabs%3Dcomments)
“ After reading this article, I think I'll make the necessary changes to my advanced directive and will. (http://online.wsj.com/article/SB126213588339309657.html?mod=WSJ_hps_LEFTWhatsNew s#articleTabs%3Dcomments) ”
— Michael Bachman

In addition, the composition of the Supreme Court has changed, and some financial advisers believe the court might not again bless a retroactive law. "People with the means to fight against a retroactive law will die, and someone will challenge it and we might not know the answer for years," Mr. Belcher says.
As part of the changes taking effect in January, Congress also dramatically lowered the taxes on gifts to grandchildren. But all the uncertainties -- Will the law be changed? Will it be retroactive? -- are forcing family legal advisers to craft various provisional financial-planning strategies that can be undone later if the rules do change.
The situation is causing at least one person to add the prospect of euthanasia to his estate-planning mix, according to Mr. Katzenstein of Proskauer Rose. An elderly, infirm client of his recently asked whether undergoing euthanasia next year in Holland, where it's legal, might allow his estate to dodge the tax.
His answer: Yes.
Write to Laura Saunders at laura.saunders@wsj.com (laura.saunders@wsj.com)
Corrections & Amplifications:
Estate planning in 2010 will be complicated by a capital-gains tax that replaces the estate tax. A previous version of this article incorrectly stated that the gains tax would be levied at death.

Goldenoldie
12-31-2009, 03:11 PM
God bless America!

Goldenoldie
12-31-2009, 03:12 PM
And God bless anybody who is rich enough to give a shit.

cobalt60
12-31-2009, 05:11 PM
What occurs in England?

Har-Tru
12-31-2009, 06:03 PM
What occurs in England?

Maz9ddxEQnM

prima donna
12-31-2009, 06:09 PM
And God bless anybody who is rich enough to give a shit.
What determines the extent of one's wealth or poverty is strictly subjective. People ought to care, especially if the bar continues to drop in ascertaining who the so-called "rich" are. There aren't, say, a lot of people boasting a net worth of 15 million dollars or more. Yet there are plenty of people who earn above $100,000 annually and have labored in order to put aside a couple million dollars to use as a cushion for retirement, some of which will be inherited by their children. 500,000 dollars was once the bar, now the bar has been lowered to 250,000 -- next it will be 150,000 and then 100,000. This is a game of limbo being played by the American Congress: how low can we go before people grow tired of having their assets confiscated ?

One would have to be delusional to believe that Congress will not make some attempt to expand the estate tax so as to increase revenues. Also, there are basic accounting mistakes made in appraising estate value. Many people are worth far less than numbers on a piece of paper would indicate. If a man owns a real estate company -- a rather large one -- should his children be punished upon his death ? Particularly if much of his money is tied up in his company, as opposed to sitting in a bank waiting to be spent on a Lamborghini.

cobalt60
01-01-2010, 12:13 AM
The problem I have with the "estate tax" or whatever you want to call it, is that money has already been taxed.

prima donna
01-01-2010, 12:24 AM
The problem I have with the "estate tax" or whatever you want to call it, is that money has already been taxed.
Oh, knock off the nitpicking, why don't you ? So what if our money gets taxed half-a-dozen times, get in the spirit and spread the wealth around. Start thinking about the collective good -- family comes second.

cobalt60
01-01-2010, 12:25 AM
Oh, knock off the nitpicking, why don't you ? So what if our money gets taxed half-a-dozen times, get in the spirit and spread the wealth around. Start thinking about the collective good -- family comes second.

So hard to tell when you are being facetious. Talk to me in 20 years.

prima donna
01-01-2010, 12:38 AM
So hard to tell when you are being facetious. Talk to me in 20 years.
I was being facetious, was it not painfully obvious ? I'd never be that rude to you.

Aloimeh
01-01-2010, 06:17 AM
The problem I have with the "estate tax" or whatever you want to call it, is that money has already been taxed.

You still pay sales tax despite the fact that your income used for purchases has already been taxed.

If you give a family member a gift from post-tax funds over a certain amount, they still have to pay a tax.

Seems the government feels entitled to take money whenever there is a transfer of funds.

scoobs
01-01-2010, 10:54 AM
What occurs in England?
We have an estate tax, which the Conservatives want to reduce, or raise the threshold of, if they win the election due within 6 months - predictably this is a popular idea with the wealthy and very unpopular with everybody else.

The current threshold is £325,000 (just over half a million dollars) and if the estate is valued above that then the value above that is taxed at 40% (which seems a bit high to me).

Yes it is taxed multiple times - but then so are many things, at least here, where this is true. You're taxed when you earn money, you're taxed when you spend it, you're taxed pretty much any which way.

For me, I think that rich people in general would be less hostile to paying higher taxes if they didn't have cause to believe that Governments waste huge amounts of money - and I don't mean on things like social programs, I mean just through inefficiency, poor cost controls, spending vast sums of money on projects that have dubious practical benefit and shelving them when millions have been spent.

cobalt60
01-01-2010, 01:29 PM
We have an estate tax, which the Conservatives want to reduce, or raise the threshold of, if they win the election due within 6 months - predictably this is a popular idea with the wealthy and very unpopular with everybody else.

The current threshold is £325,000 (just over half a million dollars) and if the estate is valued above that then the value above that is taxed at 40% (which seems a bit high to me).

Yes it is taxed multiple times - but then so are many things, at least here, where this is true. You're taxed when you earn money, you're taxed when you spend it, you're taxed pretty much any which way.

For me, I think that rich people in general would be less hostile to paying higher taxes if they didn't have cause to believe that Governments waste huge amounts of money - and I don't mean on things like social programs, I mean just through inefficiency, poor cost controls, spending vast sums of money on projects that have dubious practical benefit and shelving them when millions have been spent.
Correct. Having been a government employee and in charge of a budget earlier in my career I totally understand this. And thanks for answering my question.

zicofirol
01-02-2010, 09:08 AM
THe estate or death tax is one of the most unfair taxes, even "progressive"countries in Europe have abolished or reduced it. I have a particular problem with this tax because:

1. It does not only tax the "rich" as that threshold has gone down considerably. Also people who inherit land and what not need to pay a tax on what they get even if they dont have the money for it, ive known cases of people who have inherited land and have had to pay a large amount of taxes on it, as if the land was already making money for them.

2. In general people work to provide their children with a better life, that some bureaucrat in Washington decides what is "enough" to leave to your kids is disgusting.

3. After taxing you all your life, that government comes after you when you die is really reprehensible to say the least.

The death tax should be abolished entirely, but it wont be and if you account for the inflation coming many middle class Americans will be considered "wealthy" by government standards.

prima donna
01-02-2010, 11:17 AM
THe estate or death tax is one of the most unfair taxes, even "progressive"countries in Europe have abolished or reduced it. I have a particular problem with this tax because:

1. It does not only tax the "rich" as that threshold has gone down considerably. Also people who inherit land and what not need to pay a tax on what they get even if they dont have the money for it, ive known cases of people who have inherited land and have had to pay a large amount of taxes on it, as if the land was already making money for them.

2. In general people work to provide their children with a better life, that some bureaucrat in Washington decides what is "enough" to leave to your kids is disgusting.

3. After taxing you all your life, that government comes after you when you die is really reprehensible to say the least.

The death tax should be abolished entirely, but it wont be and if you account for the inflation coming many middle class Americans will be considered "wealthy" by government standards.
Bravissimo.

scoobs
01-02-2010, 11:55 AM
I have no problem with the concept of an inheritance tax in general - indeed it would be somewhat ironic if they taxed you from birth up until death but then stopped as soon as you expire :lol:

However I believe the threshold needs to be set so that it merely affects the very wealthiest, and the rate needs not to be punitive. After all, it's contradictory to have your whole society aligned to the belief that what's important is to climb the economic ladder, and then punish people by taking huge chunks of their wealth off them when they do so.

I also believe more effort needs to be made in general to encourage private voluntary giving by the wealthiest via foundations, endowments etc. I agree that people work to provide their children with a better life but that often in doing so, ironically, fail to do so - by providing them with material things but little emotional or moral well-being. However that's not really the State's problem.

Those who earn a fortune by their own hard work, intelligence, whatever, are one thing, but I despise those third or fourth generation inherited wealthy who don't have a clue how to make money, don't understand how difficult life is for those who don't have any, and don't believe the struggles of other people are anything to do with them.

But again, that's not the State's problem, and one of the big political concerns I have as we go into this new decade, is the continued creep of the State into the lives of its people - whether by intrusive laws, excessive surveillance, erosion of traditionally guaranteed freedoms, or policies designed to herd us, sheeplike, into Government approved behaviours.

Garson007
01-02-2010, 02:52 PM
This is the reason why Trusts have been the financial fad for the last 20 years.

I disagree with Scoob's assessment on the wealthy needing to be more charitable. I disagree with charity; it should be (and is) the goverment's objective to provide for those institutes and peoples, this is after all why government is employed - to provide for and govern its people. Therefore I'm more in favour of taxation than a charitable nature.

Estate tax should exist on the pure basis that the parents should provide for the children until they have the ability to financially walk, not after. Anything else is unfair to the rest of the skilled population.