Estate Planning

A Good Year to Die?

By Hull & Hull LLP

An interesting controversy has been brewing in the United States on the issue of estate tax in the year 2010.  Estate tax in the United States is a tax imposed on the transfer of the "taxable estate" of a deceased person, including those cases where property is transferred via a will or the laws of intestacy.

Amazingly, due to changes made by Congress under the George Bush administration back in 2001, estate tax is due to fall from 45% today to zero in the year 2010.  It will then increase to 55% in the year 2011.  This unusual loophole has, not surprisingly, led to some very innovative estate planning tactics across the border and has even been referred to by one Wall Street Journal columnist as the "Throw Mama From the Train Tax" (read the article "Death by Taxes: Seniors May Plan Their Demise to Maximize Their Bequests" here).

But just how far are people willing to go?  As the Wall Street Journal suggests, "If speeding up death can prevent a small fortune from being captured by the government, its not a stretch to suspect that death will be timed conveniently".  The issue is keeping estate and tax solicitors busy as many are preparing multiple wills based upon the year in which their client might die.  Word has it that before the 2010 repeal, both Barack Obama and John McCain are proposing new exemption amounts which would take effect before the year 2010 and avoid the potential calamity.

As estate solicitors, we are aware that estate taxes (referred to as estate administration tax or "probate" tax in Canada), can alter human behavior (i.e. such as a move or transfer of assets to a more tax friendly jurisdiction) and motivate individuals to estate plan as creatively as possible.  The transfer of property into joint ownership (in certain circumstances), multiple wills and certain trust instruments are examples of such tax avoidance strategies. 

 Sarah Hyndman Fitzpatrick

Full post as published by Toronto Estate Law Blog on July 28, 2008 (boomark / email).