Dealing with the Estate Tax at the End of 2010

A wealthy elderly client recently asked Massachusetts attorney Bruce Bettigole whether her children would inherit her estate if she committed suicide in 2010. Mr. Bettigole responded: “I’m going to make believe I didn’t hear that question.”

Due to the estate tax repeal, some have joked about “throwing Momma from the train” before 2011, but the more likely scenario is that parents who are already sick will quietly kill themselves in order to benefit their children. How should attorneys handle this terrible limbo? Howard Zaritsky offered a few pieces of advice:

• Assume that the exemption will be $3.5 Million with a 45% top rate, retroactive to January 1, 2011, and plan accordingly.
• If death is imminent, take advantage of every possible legal loophole to reduce the size of an estate, including making $13,000 gifts, paying for medical care, and paying for tuition.
• Make taxable gifts (at the low rate of 35%), and consider using generation-skipping and other trusts

“Don’t think you can start this process after Christmas and get it done,” Mr. Zaritsky says. “If you want to transfer securities on Dec. 28, it could take two weeks unless the recipient already has an account at your firm. Get your ducks in a row.”

Laura Saunders, Estate Taxes: How to Beat the Levy That Won’t Die, W.S.J., Nov. 20, 2010 (quoting Howard Zaritsky).

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.