mod (Andy) note: "Blast from the past - Best of Eddie" If there's an old post from Eddie you'd like to see up again shoot me a message.
I know Halloween was a few days ago, but I can't resist the ghoulish temptation to write about this novel approach to estate planning. As most of you know, the year 2010 has become a de facto estate tax holiday for those estates normally subject to the tax. But all good things must come to an end, and on January 1, 2011, the estate tax goes back to a punishing 55% of all assets over $1 million.
As with most things in life (and death, apparently) timing is everything.
This creates an interesting ethical dilemma. Do you love your family enough to swallow a bullet before New Year's Eve if it meant you could save them several million in estate taxes? Wyoming Rep. Cynthia Lummis says she has wealthy constituents who are discontinuing dialysis and other treatments now in order to beat the clock and pass their ranches and businesses on to their children without the feds getting their grubby paws on it.
I can see where this bit of estate planning might appeal to those who are aged or infirm. If you know you're probably checking out in the next six months anyway, why not settle in for the dirt nap a little early and preserve the wealth you worked your entire life to build? It's an especially appealing notion to those whose wealth is comprised primarily of illiquid assets such as a business or large tracts of real estate. These assets would have to be sold to satisfy the tax, effectively destroying a life's work.
But what about those deca-millionaires who aren't sick? Or the ones who aren't even particularly old yet? It's one thing to trip over Granny's life support power cord, it's another thing entirely to have an otherwise healthy person say, "Well, this is the best thing for my family financially."
Some of you might find this hard to believe, but I try to find the bright side in nearly everything. Think of the kick ass Christmas party you'd throw this year if you knew you were going to save your family millions of dollars (or potentially billions, as in the case of Dan Duncan).
Don't think of it as suicide, think of it as eXtreme estate planning (everything's better when you put eXtreme in front of it, right?). Could you bring yourself to do it for the money? Is it an issue of how much you love your family? Be honest, now. How many of you are going to sidle over to Gramps at Christmas this year and ask him what he's got planned for the next week (hint, hint)?
What a world we live in that taxation (or in this case double, triple, and quadruple taxation) is so onerous that suicide has become an estate planning tool. You're better off spending every penny while you're alive.
At what point would you consider it? $1 million for your family? $10 million? $100 million?
Pretty dark topic edmundo. However, I had a girlfriend from high school that mentioned this to me a year or so ago. She said her somewhat healthy grandmother, who was worth upwards of 100M, was seriously considering ending it to save the family 50 or so million dollars. i thought she was joking around at first but she just gave one of those serious looks when I asked to confirm. Needless to say my jaw dropped to the floor.
Just blast the Final Countdown and let the car run in the garage for 30 minutes...
The estate tax is one of the most disgustingly reprehensible items in our entire twisted monolith of a tax code. Why leave anything behind for your family if Uncle Sam will just take 55% of it? It needs to be abolished ASAP.
That being said though, as odious as I find it, I'd be content to let nature run its course.
Or you could just spend it all before you die...leave nothing behind.
Wouldn't it be easier to fake your own death and just live off said estate?
You'd have to be pretty miserable to end your life for an amount of money. You only get this life once. I know we all want to be rainmakers with billions, but to end your life on account of tax liability? No thanks.
I agree with Libor...make faking death a financial planning tool.
Personally, I live life with the plan to spend or donate my vast(?) estate and have the last check I write bounce.
If your rich enough I thought you could establish a "living trust" - the money would officially be in the name of some investment vehicle and your heirs would "inherit" $50k a year forever. That way they don't have to pay high per year taxes.
Forget extreme estate planning. Just work on doubling your money so you can laugh at that estate tax.
Very dark topic - not sure if I could bring myself to do it for any amount of money. After all, you can't take it with you.
It does raise two related questions though: 1.) How big a deal is this really? How easy is it for the super wealthy to shelter their assets offshore or in various trusts to protect them from this tax? I can't imagine the Rockefellers' fortune has been dwindling 55% every year... 2.) The faking your own death option is interesting - how difficult do you guys think that would actually be? Wouldn't be too difficult to skydive over some ocean hole where the "body" could feasibly be lost, or go hiking deep in the Himalayas and "disappear". Ever heard of anyone pulling this off?
Faking your own death is often easier said than done. If you're a nobody, you can probably drop off the face of the Earth without anyone giving it a second thought. If you're wealthy enough to sweat the estate tax, however, people are going to come looking.
Also, insurance is a major consideration. You can fuck the government for most (or even all) your life and get away with it, but the minute you fuck an insurance company - you are fucked. If you fake your death and your heirs receive life insurance proceeds, the insurance company will stop at nothing to ruin their lives if they think for even a minute that your death wasn't legit.
I would point you to two high-profile cases that bear this out. The first is Patrick McDermott, found earlier this year after faking his death so his son would receive $100,000 in life insurance. Now they're both screwed:
http://www.nydailynews.com/gossip/2010/04/06/2010-04-06_olivia_newtonjo…
The second is the mysterious case of Larry Hillblom (the "H" in DHL). He disappeared after a plane he was supposed to be on crashed. Every body was recovered except his. When investigators went to his home, they found it had been scrubbed clean of all traces of Hillblom's DNA with muriatic acid. He is widely believed to have faked his own death, and he was a billionaire:
http://en.wikipedia.org/wiki/Larry_Hillblom
It's always been an area of fascination for me. Who wouldn't like to start over from scratch sometimes?
The estate tax highlights the fact that government in the US has become to big. If the gment cant manage to fund its programs by taxing peoples earnings it needs to spend less, not punish the wealthy for dying.
Anytime you have people actively choosing death to avoid taxation you know something is wrong. Shame on politicians/congressmen/senators for allowing this shit...then again politics is where smart people go to die.
If you consider that most wealthy people who pay taxes payout roughly 50% on the marginal dollar of their earnings, the death tax ups the majority of their lifetime tax-rate to approx 75% on the margin. Talk about about fucking over people for accumulating and passing on wealth.
Lets look at what this tax encourages: spending down 'excess' wealth on goods that don't hold value.... so basically the government is encouraging the rich to go out and buy nothing of value. Might as well drop 5K a night for bottles at Bungalow 8 with some Cris and Beluga on the side. ... better than buying a house my children will have to sell in order to pay the tax. So it looks like savings (the building block of investment in new capital for all you econ guys out there) is not that important to the government....which makes sense; they overspend and using that logic I guess so should the rich. Terrible.
Fuck the police....and the estate tax.
Not to thread jack, but the Patrick McDermott story is another reason why monogamy is death for men. Had this fool had himself a vagina he would have been milking Olivia Newton John for millions, instead old boy declares bankruptcy over $30K and flushes it all away. He could have been a proper gigolo and perhaps a groundbreaking activist for trophy boytoy/hubbies everywhere.
Great post Eddie - the Hillblom case really is fascinating. Wonder what his reasons for faking his own death were? The estate tax loophole only occurred in 2010, so "dying" was a pretty expensive proposition for him in 1995.
Also, CompBanker - heh obviously faking your own death requires that you disappear. I was hoping somebody had a "my best friend did this", or "my father did this", or best of all "I faked my own death and live under an assumed name" (Eddie?)
At the time of his death, Larry was a resident of an extremely low-tax jurisdiction (Saipan is an American protectorate and American residents there are rebated 95% of the income taxes they pay over the course of the year - at least that was the case when Larry disappeared), so he didn't do it to duck the taxes.
Larry had, shall we say, "unusual" appetites that started to catch up with him. His disappearance (if it was in fact a disappearing act and not death) was more about avoiding the shitstorm heading his way than it was about dodging taxes. I have no doubt Larry had more than enough squirreled away to live the rest of his life in opulence somewhere in SE Asia if he did pull a Houdini.
I'm definitely in the boat that charity could do much more with the money than the government... If you are unhealthy and content with what you have achieved in life, pull the plug and give 55% to Bill and Melinda Gates.
Life insurance is a beautiful thing.
Anyone who has that much money and doesn't have a team of advisors, investment planners, estate planning attorneys is an absolute idiot. With the tax code so complicated it makes easy pickings for finding loopholes. I've seen hundreds of UHNW individuals pass down millions to heirs.
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