WSJ: The Estate Tax Death Panel -- Too Rich to Live Past 2010?

Weekend Wall Street Journal, Too Rich to Live?:

The estate tax is set to come roaring back in January. That sets the stage for a perverse calculus: End it all—or leave a massive bill for your heirs to deal with.

It has come to this: Congress, quite by accident, is incentivizing death.

When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death's door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit. Now the situation has reversed: If Congress doesn't change the law soon—and many experts think it won't—the estate tax will come roaring back in 2011. Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.

The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.

Of course, there is a "death incentive" whenever Congress raises the estate tax. But it hasn't happened in decades; the top rate has held steady or fallen since 1942, according to tax historian Joseph Thorndike of Tax Analysts, a nonprofit group. In fact, the jump from zero to 55% would be "the largest increase in a major tax that we've ever seen," Mr. Thorndike says.

That possibility presents a bizarre menu of options for wealthy older people—and their heirs. Estate planning was never cheerful, but now it is getting downright macabre, at least for the tax averse.

"You don't know whether to commit suicide or just go on living and working," says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year. ...

Senators are divided among three possible solutions. Some favor the pre-Bush rate of 55%, while others advocate a 35% rate (with a more generous exemption). A third group prefers the old 45% rate. ...

The IRS has yet to issue guidance explaining current estate-tax law, and no one knows if Congress will include retroactive elements when members deal with the tax. ...

Mr. Aucutt, who has practiced estate-tax law for 35 years, expects to see "truly gruesome" cases toward the end of the year, given the huge difference between 2010 and 2011 rates. Without knowing what the estate tax is, has been or will be, advisers say it is difficult to offer counsel that applies broadly, as techniques that work under one version of the law backfire in others. ...

What about the options for taxpayers who are so eager to reduce their heirs' tax burden that they are considering ending their lives? Three states—Oregon, Washington and Montana—allow versions of the practice. ... Still, states strongly discourage what's becoming known as "suicide tourism" with elaborate residency and documentation requirements.

Similarly, some countries, such as Switzerland and the Netherlands, have long allowed physicians to aid patients in dying. But only Switzerland extends this benefit to foreigners.

(Hat Tip: Scott Radmall.)