Beware greedy relatives

LITTLE ROCK — I suppose you’re wondering why I gathered all you distinguished Americans here today. So far you have survived the worst crisis in financial markets since the Great Depression. You have held onto your sizable wealth, which presents us with a tax-planning scenario that only Agatha Christie could have dreamed up: There is a new and possibly significant risk to your continued survival that runs through the end of this year.

You no doubt heard about the death of New York Yankees boss George Steinbrenner last week, and you may know he died at an opportune time for his heirs. Your own children and grandchildren, nieces and nephews probably learned something that could put you in danger.

You see, thanks to a quirk in George W. Bush’s tax cuts in 2001, the estate tax this year, and only this year, is zero. That means if you die in 2010, your heirs pay the government nothing on the money you pass along to them.

But as the saying goes, no good thing lasts forever, and the estate tax is coming back with a vengeance. Unless Congress extends the tax cut, starting on January 1st all taxable estates that exceed $1 million will be taxed at the pre-2001 rate of 55 percent.

You heard me right: A federal tax rising from zero to 55 percent as the ball drops in Times Square. Have you ever heard of such a thing?

I investigated whether Congress might act to prevent this crazy, sudden increase, and the perverse incentive that accompanies it, by keeping the death tax dead. It doesn’t look good. Even if Congress acts, it seems likely to tweak rather than abolish the tax. For instance, Senators Blanche Lincoln of Arkansas and Jon Kyl of Arizona would restore the estate tax at 44 percent, exempting the first $3.5 million, eventually dropping to 35 percent with a $5 million exemption.

So it seems that, no matter what, the estate-tax rate next year is going to be well above today’s goose egg. If you wait to die until 2011, you’re likely to face a tax rate of about 50 percent. That means if your estate is $200 million, your heirs save about $100 million if you, let’s say, conveniently have an accident in the next five months.

I see some of you shaking your heads. I know, this may sound far-fetched. But economic studies have shown that monetary incentives influence death rates. Plugs get unplugged, do-notresuscitate orders are placed. Maybe worse.

A good deal of research has found a decrease in deaths in the weeks before major events, such as holidays or major elections, and an increase in deaths afterward. So it’s quite possible that people reach a certain date through the force of their own will to live. This suggests that your own determination to see 2011 might matter more than, say, the possibility that your grandchildren poison you.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist.