The good news is, Ty Coon is a billionaire. The bad news is, Ty Coon recently turned 98-years-old and is sick…very sick. In his younger years, Coon amassed a billion dollar fortune as the owner of an international Mexican fast food chain. While Coon always found time for tacos, he never had time for sophisticated estate planning and just assumed that upon his death his entire estate would go to Owen Cash — Coon’s adopted son and only living relative. In late December 2010, Coon slips into a coma after complications developed from a long bout with pneumonia. The doctors place Coon on life support and tell Cash that there is little chance of recovery and that the decision to “pull the plug” will be left to Cash. Is there a tax benefit to Coon dying in 2010 rather than 2011?
Yes. In 2001, Congress voted to gradually raise the federal estate tax (the tax on the estate of a deceased person) exemption while cutting income tax rates. The exemption culminated in a complete repeal of the estate tax in 2010. So, 2010 is an excellent year to die and Koon’s estate (as will the estates of New York Yankee’s owner George Steinbrenner and Taco Bell founder Glen Bell) will likely pay no estate taxes. So what happens if Coon dies on January 1, 2011? Unless Congress acts, the estate tax will be back with a vengeance in 2011, taxing estates valued at more than $1 million at a rate of up to 55%! Incredibly, for the Coon estate, the difference between dying at 11:59 p.m. on December 31, 2010 and dying at 12:01 on January 1, 2011 could be the difference between paying nothing in taxes or hundreds of millions.
Tilting the Scales in Your Favor
Legislators are trying to agree to a more lenient 2011 federal estate tax than the one currently slated. There has even been speculation that the estate tax might be made retroactive to January 2010. Individuals with estates in excess of $1 million (this includes home, IRA, 401(k), etc.) should consult with their attorney and financial advisor about available estate planning strategies.