2013 is here, and after months of post-election sound and fury, we
took a quick "test leap" off the dreaded "fiscal cliff." Look out below!
this point, we're all familiar with the income tax consequences of the
cliff. The Bush tax cuts expired, as scheduled, on December 31, sending
everyone's taxes up. The 2% payroll tax holiday expired at the same
time, with no hope of resuscitation. The Alternative Minimum Tax (AMT),
which up until this week had never been indexed for inflation, still
hadn't been "patched" for 2012, meaning it would catch 27 million more
Americans in its claws. There are even new Medicare taxes and a 3.8%
"unearned income Medicare contribution" on earned income and investment
income for individuals earning over $200,000 and joint filers earning
over $250,000. (Okay, those new Medicare taxes aren't technically part
of the "fiscal cliff" -- but they don't give upper-income earners much
reason to cheer 2013, either!)
But the fiscal cliff also threatened some dramatic estate
tax changes as well. Taxpayers dying on December 31 could leave a
tax-free $5.12 million "unified credit" to their heirs, and pay a 35%
rate on any balance above that amount. On January 1, however, that
unified credit shrank to just $1 million -- and the tax itself jumped to 55%.
Die on December 31 with a $3 million estate and owe Uncle Sam nothing.
Die just one day later, and pay a $1.1 million tax. That's one awfully
Of course, Washington spent New Year's Day scrambling its way back from the cliff. As we now know, we'll keep the Bush tax rates on incomes up to $400,000 ($450,000 for joint filers) and get a permanent AMT fix. As for estate taxes, the unified credit stays the same and the rate climbs to 40%.
So, here's an awkward
question, moot as it now may be. With such large estate taxes at stake,
would millionaires choose to die early to spare their heirs the risk of
You probably won't be shocked to learn that
determined patients can literally will themselves to delay death past
important dates like birthdays, holidays, and anniversaries. Hospitals
saw death rates drop significantly in the last week of 1999, only to
increase by similar amounts in the first week of 2000. That suggests
that patients were determined to catch at least a peek at the new
A similiar but happier phenomenon can occur when it
comes to giving birth. In 2004, the Australian government gave
taxpayers a $3,000 new baby bonus, starting on July 1. A 2009 study
found that as many as 1,000 births were delayed to take advantage of
But dying early to save estate taxes? Really . . . ?
Well, believe it or not, yes. A 2003 study published in the The Review of Economics and Statistics
by two economics professors asked if changes in estate tax rates
affected mortality rates -- and found that for individuals dying within
two weeks of a tax reform, a $10,000 change in estate taxes increased
the chance of dying in the low-tax period by 1.6%. This is hardly
surprising when living longer let people claim the savings. But the
authors even found evidence of people dying sooner to avoid the increases. (That's especially ironic considering that, by definition, nobody gets to enjoy saving tax on their own estate!)
We've said all along that proactive planning is the real key to paying less tax. And smart tax planning lets you pay less and even live to enjoy it! So, we're glad that you're reading these words, and we promise we're here to answer all your questions on the "American Taxpayer Relief Act of 2012"!
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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