If You Love Your Family, Kill Yourself Now

If the U.S. Congress fails to act before 1 January, as is almost certain, an estate tax will be assessed on Americans who are unlucky enough to die in 2011.

The death tax will have a $1M exemption and a 55% top rate. $1M may seem like a lot, when you think in terms of cash. However, this is a truly devastating tax for small businesses and farms where the business and the property is worth a considerable amount of money, but the profit on that investment is comparatively small each year.  Many of these families are asset rich but cash poor.

Paying this death tax will force many small businesses and family farms to sell their properties — effectively putting the owners out of work. Worse, the sales will have to be made shortly after the deaths of their loved ones, making them easy prey for vulture investors. Timing is very important when selling a small business and, due to the Obama recession, this is an extremely bad time to sell a small business. Valuations for many small businesses are half of what they were just a few years ago.

The solution is easy. Kill yourself over the Christmas holiday. If your farm is worth $15M, you will save your family approximately $8M in inheritance taxes — effectively saving your family farm. If you wait until 1 January to die, your farm will very likely end up being sold at a fire-sale price while your children lose their livelihoods.

Joseph Thorndike of Tax Analysts calls this tax increase “the largest increase in a major tax that we’ve ever seen.”  I call it “the Federal government trying to get rid of old people and small businesses.”  Perhaps this is the Congress’s brilliant plan to “save Social Security” by clearing the bench of older Americans.

The death tax also creates a significant incentive for Americans with parents on life support to pull the plug in time for their parents to die this year.  Waiting until January to pull the plug could cost more than half your inheritance.  Is a few more weeks of grandpa’s life really worth losing the ability to send all four of your children to college?  These are the decisions people will have to make come December.  This may be a long cold December indeed.