Fiscal Cliff 2013: Estate Taxes Scheduled to Rise by 20% in January
Dr. Jack Kevorkian claimed to have performed 130 physician-assisted deaths. Known as “Dr. Death,” he famously said, “Dying is not a crime.” If he were alive today (and hadn’t been convicted of euthanasia in 2007), he might be on call for wealthy benefactors next year. Starting in 2013, the estate/inheritance tax will rise from 35% to 55%. Additionally, the tax exemption will be lowered from $5 million to $1 million. That means it would be financially more beneficial for beneficiaries if their wealthy benefactors moved their imminent departure up a few days.
The Wall Street Journal published this chart comparing the before and after tax effect of the tax.
In 2010, the tax was repealed in its entirety — a “millionaire’s benefit” — but it was restored in 2011. Now if a budget deal is not struck, like all other taxes it will go up in 2013. The estate tax is a tax paid by beneficiaries on the taxable estate of a deceased person. The assets inherited by or transferred to the beneficiary can be via will, state intestacy law, certain life insurance benefits or financial accounts. The federal estate tax is imposed “on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.” The estate tax forces a beneficiary to pay taxes on assets that have already had taxes assessed and paid. It is a tax penalty for inheriting assets that have already been taxed. In effect, it costs money to inherit money.
While it may seem unconscionable to plan death around taxes, it is not unprecedented. John Carney of CNBC notes that “There is good evidence that there is some ‘elasticity’ in the timing of important decisions about life and death.” He noted that the number of deaths in the first week of 2000 exceeded the number of deaths in the last week of 1999 by 50.8%, suggesting that some people hung around to ring in the new millennium.
The penalty to inherit a family asset can be devastating. Jeff Page, who lives in Napa Valley, California, owns a 120-acre vineyard. However, when he inherited the land in 1977, he had to sell 150 acres to pay the tax. He is concerned that his descendants will be hit with a large tax bill that will force them to sell off the family assets. His land could be appraised as high as $8 million, but he says, “We’re dirt rich, cash poor.”