It turns out that Congress' 2001 effort to kill the "death tax" might actually increase the cost of dying, if such a thing is possible. The ballyhooed repeal of the estate tax-levied on a corpse's assets worth more than $674,999-was never a done deal. It was more accurately a death tax hiatus. The legislative deal reduces the tax burden gradually, repealing it totally in 2010, and then reviving it in full the following year. Thus, the window of opportunity for avoiding the death tax requires a schedule more familiar to Dr. Jack Kevorkian than to traditional estate planners.
Now many states, suffering from years of profligate spending and the recent economic slump, are refusing to give their own death taxes the last rights. "The states got screwed," Virginia's Finance Secretary John M. Bennett tells The Washington Post. He says he desperately needs the $130 million a year that Old Dominion residents cough up when shaking off their mortal coils. So Virginia and many other states are considering keeping their death tax laws on never-ending life support.
That's where the unintended consequences kick in. Congress reduced the federal tax deduction for state death taxes when it reduced the federal death tax. With states keeping their cut, dying will now cost some people more than ever. Estate planner Wendell R. Bird tells the Post, "What was in concept a clean and easy estate tax repeal has become a complicated tax repeal that can actually increase bills."
Who was it that said dying is easy, taxes are hard?