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The Wall Street Journal published an article today entitled “Rich Cling to Life to Beat Tax Man.” The article describes a new wrinkle in advance care planning: “families are struggling with whether to continue heroic measures for a few more days” in order to take advantage of the ostensible temporary one year lapse in the estate tax that will begin on January 1st (experts say it is not likely that Congress will leave this lapse issue alone for long; a fix could even be retroactive if put in place soon enough). It also describes patients placing provisions into the advance directives allowing proxies to make end-of-life decisions based partially on changes in the estate tax law.

How big of a problem is this? Can financial incentives postpone or accelerate death? Do changes in the estate tax code really affect whether people live or die? In 2001, Joel Slemrod and Wojciech Kopczuk won the IgNobel prize for their paper called “Dying to Save Taxes“. In their paper they examined the timing of deaths resulting in taxable estates in the period surrounding 13 major changes in the estate tax. The results show a significant “death elasticity,” meaning that the reported date of death responds significantly to changes in the estate tax. They conclude that, for individuals dying within two weeks of a tax reform, a $10,000 potential tax saving increases the probability of dying in the lower-tax regime by 1.6%.

Along a similar theme, Joshua S. Gans and Andrew Leigh examined what happened when, in 1979, Australia completely abolished federal inheritance taxes. Using daily deaths data, they tracked the number of deaths during the final week of June and the first week of July, 1979, when the tax code changed. As a control, they used the number of deaths during for these weeks during the years 1974-1978 and 1980-2003. In the control group, there was no significant difference in the number of deaths, but in 1979, the year the tax was abolished, fewer deaths occurred during the last week of June than in the first week of July. They conclude that approximately half of those who would have been subject to the estate tax “shifted” their deaths from the week before the abolition to the week after. They also suggest that the scheduled abolition of the US inheritance tax may lead some deaths to be shifted from the last week of 2009 into the first week of 2010.

So there is some evidence that the timing of death is elastic. What does that mean for us? Well, it may mean a very busy year. According to Wendy Greenberg, a trusts and estates lawyer, the estate tax will be reduced to a rate of 0% on January 1st. This reduction is from a maximum rate of 45% for 2009, with the tax affecting only those estates of over $3.5 million ($7 million for a married couple). Congress will likely act on this and reinstitute the tax sometime during the next year, but if current law is left standing, the “lapse” lapses itself on January 1st, 2011, when the maximum rate bounces up to 55% (with the tax affecting estates over $1 million ($2 million for a married couple)). That is a lot of change for one year, adding to the difficulties of already difficult end-of-life discussions.


Kopczuk, W., & Slemrod, J. (2003). Dying to Save Taxes: Evidence from Estate-Tax Returns on the Death Elasticity Review of Economics and Statistics, 85 (2), 256-265 DOI: 10.1162/003465303765299783

Gans, J., & Leigh, A. (2006). Did the Death of Australian Inheritance Taxes Affect Deaths? Topics in Economic Analysis & Policy, 6 (1) DOI: 10.2202/1538-0653.1654


This Post Has 9 Comments

  1. Great post. Thanks for finding that other research about Australia. I love the IgNobel prizes. Almost as good as the BMJ Christmas issue.

    For continuity, I discussed this issue last year on Pallimed after an article in the Annals of Internal Medicine covered the change in estate tax.

    I cross posted your article to the comments section on the Pallimed article.

  2. Here is a synopsis from my article summarizing my view on the matter of death and finances:

    I think the inclusion of financial matters is a valid fulcrum for health care decision making. In a whole-person approach, the financial stability and security of one's assets may be a demonstration of love, good parenting, thrift, rebellion against taxes, or many other things representing high personal value to a patient and therefore part of the patient's image to one's family and peers.

    Would it 'feel yucky' to be part of a medical team advocating for health care decisions based on a patient's thoughts about their finances. Yes. Is there room for abuse of power in this situation? Absolutely. Does that invalidate the reasoning of the patient? No.

  3. Just a quick note in reference to Christian's comment and a discussion I had with Eric yesterday–please take note of the VERY high credit amount applicable before estate taxes apply (for one more day, anyway). A fix in Congress will very likely approximate that credit as well. In other words, if your patient is not a multi-millionaire, he or she or his family or her family should not be concerning himself/herself/themselves with this particular tax snafu.

  4. Thanks for the heads up on the post Christian and thanks for setting some realistic expectations Wendy. We are really dealing with silly amounts of money here (for married couples with above $7 million) . I doubt whether this will really play a role in the work we do with our patients. Although, I worry that the misconceptions that many people have regarding the estate tax will feed into the idea that this impacts the decisions that they make for their loved ones or themselves (when in fact their estate only includes an underwater house).

  5. If you examine this issue more closely, you’ll find the most likely financial incentive is to die just before 2010. The real effect of this is that virtually every estate will pay more except for the very largest.

    You have to remember how the estate tax operates. The assets are valued at the time of death and I think 12 months later. The lower of those values is used; 3.5 million is exempt from the estate tax, any amount above that is taxed at 45% As the person inheriting the assets, after the estate tax is pay, no further taxes need be paid. When the estate tax goes to zero in 2010, any capital gains on the assets will have to be paid. Since the majority of the assets in large estates are capital gains of one sort or another, stocks, bonds, real estate, lots of taxes will be owed by beneficiaries. Taking this into account, I’ve estimated that only estates of more then 5 or 6 million dollars will pay less in taxes. This is a regressive tax on virtually all estates for the benefit of the very largest estates.

  6. Dan: The $7million San Francisco house carries with it the obligatory $6,999,999 million dollar San Francisco mortgage, leaving the heirs $1 fight over.

    Artk: interesting. Sounds like 2010 is going to be very messy from an estate planning standpoint (we haven't even talking about how each the individual state estate tax rates fit into this). I'm guessing the mess will lead to lots of wiggle room for the super rich to get out any estate taxes.

  7. There's a movement to radically change California government, by getting rid of career politicians and chopping their salaries in half. A group known as Citizens for California Reform wants to make the California legislature a part time time job, just like it was until 1966.

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