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Death Arbitrage: Should I Pull the Plug Today? There’s No Estate Tax.

I’m angry. I’m disheartened, dismayed, and disgusted. But mostly, I’m angry.

One of my peers today asked me if I am advising clients to remove life support from their loved ones Рtheir RICH loved ones Рquick, right now, before Congress acts to bring back the estate tax.

Because, depending on the nature of the assets, you can do the tax math and decide whether it is more lucrative to allow someone you love to die today, or keep the person alive, betting that Congress will change the estate tax laws in a manner more favorable to a delayed death.

I was horror-stricken. Not because I was surprised; we estate tax professionals have been discussing this potential situation for a decade. I was appalled because I believed that Congress would never allow its citizenry to be in this position. And here we are — four days into the new year, and now my clients want to know their options.

What are the death-tax-lottery alternatives?

1. For the critically-ill person of any amount of wealth, if the differential between fair market value and basis is less than $1.3 million, it makes tax sense to pull the plug.

2. For clients with unrealized capital gains of more than $3 million above the $1.3 million in basis that we may allocate now, (so, for example, someone with $4.25 million or more in wealth that has zero basis), for tax reasons, you should pay the electric bill and keep that machine going until Congress acts.

3. For critically-ill people worth between $4 and $4.5 million, the 15% long-term capital gains tax on the amount above the $1.3 million in basis that we may allocate today may be more than the 45% estate tax on assets above $3.5 million that would be due if Congress extended the estate tax rules from 2009. Your tax professional, if s/he has the stomach for it, can calculate this number for you.

Gallows humor for clients with a lot of life insurance, but not a lot of other assets, used to be that they were worth more dead than alive. Now it isn’t funny. Congress has opened the door for tax implications to be one more piece of the puzzle that people consider when dealing with an impending death. And I’m one of the tax professionals who will be asked to provide the information. How caring is that?

I read quotes about members of Congress piously discussing the sanctity of life. Yet here I sit, in a position that is untenable, but that was wholly avoidable by even a modicum of responsible action from my elected representatives. For that, Congress, I will not forgive you. I have a vote, and I have a voice, and I will use both.