Liars, Damned Liars and Advertisers

A press release sent out by a lawyer and financial planner was written to promote the purchase of life insurance to deal with the double tax on pension benefits (and other income in respect of a decedent) included in an estate. While life insurance can be a cost effective alternative, seeing the use of an apparently intentional exaggeration of the facts makes it difficult to believe the accuracy of the information or the integrity of the people providing the information. Here’s an excerpt from that press release.

As federal taxes reach nearly 40% (even without state income tax), and estate tax is assessed between 37% and 50%, the combined tax rate escalates fast. Although rules provide for a partial income tax credit for estate taxes paid, the total tax on assets characterized as IRD assets can be over 90%. 

If that press release were written ten years ago, it might have been true and it might be true in the future if the Democrats have their way. But for now, the highest federal income tax rate is 35%, not 40%. And the highest estate tax rate is 45%, not 50%. And the income tax is paid by the heirs who may be in a much lower tax bracket than the decedent. And there is a deduction allowed to the heirs for the estate taxes paid by the estate because of including the pension benefit (or other IRD) in the estate.

Consequently, it’s misleading to simply add the top income tax rate and the top estate tax rate. Obviously, the purpose of advertising is not to educate but to motivate. But at a minimum it shouldn’t be necessary to make false claims regarding the top tax rates. For those who are interested in a much more accurate and informative explanation of the problem of deferred income and the estate tax, the NY Society of CPAs has an excellent article called Maximizing the Tax Deduction for Income in Respect of a Decedent.