"Death Tax" takes on new meaning

Can you put a price on a life? We tend to think that life is priceless. But as 2010 draws near, with the federal estate tax set to repeal, some wealthy families may think that you can put a price on it after all.

On Jan. 1, 2010, the federal estate tax is repealed -- but only for a year. On Jan. 1, 2011, assuming that Congress doesn't act, the federal estate tax will "sunset" back to its 2001 status: that means higher marginal rates and lower personal exemptions. All else being equal, 2010 looks like a great year to die if you're rich.

Ethically, this raises some interesting issues. Wealthy families are now struggling with end-of-life decisions that can be measured in terms of millions of dollars.

Here's an example: Let's say that Aunt Betty has a $10 million estate.

If Aunt Betty were to die on Dec. 31, 2009, she would pass approximately $7 million to her heirs. The personal exemption for 2009 is $3,500,0000, which means that her estate would be subject to federal estate tax on the taxable portion ($6,500,000). The total federal estate tax would be just under $3 million.

But what if Aunt Betty were to die on Jan. 1, 2010? She would pass all $10 million to her heirs. There is no federal estate tax for 2010, leaving the entire estate intact.

So, here's the question for Aunt Betty's heirs: is her life worth $3 million? What if she were on life support? It's conceivable that the decision to pull the plug or not would be colored by federal estate taxes. Is this a good result?

But it doesn't stop there. If Aunt Betty were to die on Jan. 1, 2011, she'd pass a mere $5,050,000 to her heirs. Since the exemption will drop to $1 million and the tax rate will increase, her estate would pay $4,950,000 in federal estate tax.

The so-called "death tax" is now taking on a completely different meaning. As morbid as it seems, the timing of your death (if you're wealthy, that is) clearly matters.

Is this what Congress intended? By doing nothing other than allowing the temporary Bush cuts to expire, they've created an ethical dilemma: when is the best time to die? The question is not necessarily limited to a person who is dying. Should potential heirs be allowed to make end-of-life decisions? Should a doctor be forced to honor an end-of-life decision if he or she is aware that the primary motive is taxes? Should a lawyer write documents that allow end-of-life decisions to be made only after taking taxes into consideration?

What complicates matters even more is that Congress may vote next year to reinstate the estate tax. They could make a reinstatement retroactive to Jan. 1, 2010 or simply allow 2010 to pass and increase the exemption in 2011. Does it make sense, then, to pin end of life decisions on a constantly moving target?

There are no easy answers to these questions. Unfortunately, Congress has created a nearly impossible situation. Even though changing the law might be simple, when it comes to end-of-life decisions there are no "do-overs."