Fatal Inflation – If Inheritance Taxes Rise, Life Insurance Can Soften the Blow on Heirs

Fatal Inflation – If Inheritance Taxes Rise, Life Insurance Can Soften the Blow on Heirs

Our word for today is a delightful curiosity: the ancient Greek ‘oikos’.

It kicks up a dickens of trouble for translators, variably meaning family, fortune or homestead. A broad homespun of meaning, easily grasped by us modern commoners, unless we take up work in politics, where the simplest ideas commonly go haywire.

Still on the Greek page, I’ve often wondered, contemplating the myth of unhappy Sisyphus: when that infernal rock slips and starts rumbling downhill, is anyone else in its path?

As the Biden administration prepares plans to tax inherited wealth, my neck gets the prickly feeling that must infect Sisyphus’s downslope neighbors. I see our president, shoving his tax rock, big as the Big Gulp I once saw Bill Clinton sipping in the back of his presidential limousine, and I wait. When will it tumble? And will I be able to dodge the darned thing?

Estate planners ruminate on this issue, if not often in such archaic terms. Joe Biden has Olympian plans to rain drachmas on America’s crumbling infrastructure. His initiatives could cost trillions, a number the Greeks failed to invent; it was nothing like plausible, even for the nuttiest philosophers, like Diogenes, who railed against society’s corruption and was exiled from his polis for debasing its coinage. He fled to Athens, as no towns had been built on the Potomac, just yet.

If all goes to Joe’s plan, the estate planning world will be tossed topsy-turvy. The venerable step-up in basis, the darling of inheritors, would be nixed. Inherited wealth would face capital gains treatment, as if the original owner (deceased) had sold them in life. The top capital gains tax would be lifted from today’s 20% to 39.6%. Then, tack on the Obamacare tax of 3.8%.

Top earners could thus face a 43.4% tax on their long-term capital gains. Depending on domicile, state taxes may be heaped on the pile. It doesn’t take Olympian gods to curse your fortunes, alas.

This is only a start: the estate tax may also come in for an overhaul. The Trump administration’s exemption level of $11.7 million per individual currently stands pat, though we recall that candidate Biden ran hard against it. Democrats have proposed trimming the exemption by half or more. Nothing concrete has emerged, but I can’t counsel napping, because like Sisy’s rock, an inheritance tax hike looks ready to roll.

The last thing owners of a substantial estate wish to do is pass on a big tax bill, post-part ‘em, to heirs. This fear is simple enough to address: call a meeting with your estate planner, schedule an appraisal to value your assets, review the inheritance tax implications under all suspected scenarios, then talk to a life insurance agent.

If your heirs might face a mega-tax bill, a life insurance policy could help cover the cost. Term or permanent life both answer the call, depending on the variables. Advisors today are calling clients to encourage this course. Yet some customers balk: nothing has happened yet; Biden’s plans may get blocked or fail to materialize; in a vague atmosphere, paying real cash for appraisals or life policies seems imprudent. Clearly, these folks never joined the Boy or Girl Scouts of America.

I was never a Boy Scout. In my 20s, I did become a small-time outdoorsman, prone to hiking, cliff climbing and camping, but only when none of my cool friends were looking. Get caught on the wrong side of a rain-swollen creek – now raging river – and you learn the value of planning for improbable, yet remarkably predictable, situations.

Today, I don’t climb stairs if avoidable; yet I’m always prepared for exigencies. A few years back, I was at Angkor Wat in Cambodia. A Canadian tourist collapsed; she’d been speared by the locals: jet-black wasps, with stingers like javelins. I tweezed out the spikes, slapped on antibiotic and bandages, force-fed her antihistamine tablets. In a crowd of hundreds of tourists, I was the only one with a first-aid kit.

Nearly 20 years ago, rocketing down the barren road from Prague to Plzen, I heard a ‘bang’. A vague black mass flew past the windshield – did I hit a seal? No – it was rubber, not blubber; a tire had blown. Cooling our heels in the roadside ditch, we had a half-bar of cellphone coverage. Just enough to get help – except, despite our combined quarter-century of higher education, none of us knew the Czech road emergency number. Predictable, really.

So we waited in the summer sun, our trip to the homeland of Pilsner beer interrupted, no refreshment in sight.

Good fortune – Ranger Tom was prepared. This being Central Europe, a ruined castle stood nearby, a wonderful ruin perched on a dragon-tooth rock. If you’ve been down that road, you’ll have seen it.

I’d been there before, knew an ancient spring was inside its wrecked walls. Geared-up appropriately with a soldier’s canteen stamped ‘1944’ and its nesting steel cup, I scaled the steep path, got us cold water. We drank it though a fiddly yet effective filtration straw. They say pixies live in that spring, who knows what they do in it?

We all shared my ham sandwich – why are you carrying such a huge ham sandwich, they wondered? I sighed; some folks are smart, but they don’t know so much.

It’s best to be ready, no matter for what. Modern tires never blow up, unless you maladroitly ram them into a cobblestone curb, as some fellow had done on Prague’s quaint, ancient streets the rainy night before our adventure. Back in our ditch, we were enjoying my flask of cognac and slab of dark chocolate – my shoulder bag can match Mary Poppins’s – when the police chanced by, saving our day, for there was no coffee.

Why, I wondered, had so many trucks hummed past, and none would stop? Oh, said the cops, likely they thought the girls were ‘professionals’, and you guys were pimps, pistol-packing. They drove us to Plzen to stir-up a tow truck, happily shared our treat of cold Pilsner and ďábelské topinky – devil’s toast. I rue that hot delicacy’s sacrilegious name, but Eastern Europeans are suspicious of delights that aren’t liquid.

Back on our road to estate tax hikes and other unsavory adventures, we don’t know where the road will lead us, yet the signs are plain, in a language we fathom. The worst may not happen, yet politicians are fickle and their game plays without rules. You’ll sleep better if you’ve a few tricks up your sleeves, in case that devil leaps up. Never mind an exorcist – call your estate planning specialists today.

SECURE Act 2.0 – Are There Angels in the Details? The Domestic Expatriates – The Tax Implications of Working in One State While Residing in Another