Estate Deathbed Planning and Ethical Considerations

Introduction

Deathbed planning may pose challenges and risks for estate planning attorneys and other advisors assisting ailing clients. Such challenges stem from limited time for deliberate planning and from complicated family dynamics intensified by the emotional stress surrounding a loved one’s impending death. Traditionally, attorneys and other advisors approach estate planning as a process, with defined steps taken to ensure each element of the plan is considered and carefully designed and structured, not unlike building a home.  The advisor constructs the foundation after gaining an understanding of the client’s goals, the assets making up the estate, family structure, comfort with complexity, and his or her charitable inclinations. Once that foundation is laid and when appropriate, the advisor will present more advanced planning techniques. Deathbed planning, unlike traditional estate and tax planning intended to mature at some unknown time in the future, compresses this timeframe, which heightens the risk of error, creates emotional tension increasing the potential of litigation risk, and ethical missteps or conflicts.  The planner must balance zealous representation of the client’s interests with professional responsibility standards as a guide and must avoid exerting or enabling plans arising from undue influence of vulnerable people in their last hours of life.

This paper explores the deathbed planning landscape. It surveys the relevant legal and tax framework, reviews common planning techniques, analyses ethical dilemmas under the ABA Model and state Rules of Professional Conduct, and considers broader policy concerns. This paper concludes by offering suggestions for best practices to attorneys and other advisors when assisting clients at the end of their lives.

Overview of the Legal Framework for Deathbed Planning

The Internal Revenue Code (IRC) and state laws provide the legal framework for providing ethical estate planning counsel when death is imminent.

IRC §2001 through IRC §2046 form the foundation of the federal estate tax system. These statutes impose the estate tax, provide the graduated rate schedule and unified credit framework that integrates the estate and gift tax into a single transfer-tax system, designates the executor as responsible for filing and paying the tax, defines the gross estate and specifies which property interests an executor must include in an estate at death. Within these inclusion rules, the “string provisions” (IRC §2035 through IRC §2028) capture transfers made shortly before death or those in which the decedent retained control, enjoyment, or the power to revoke. Additional sections address joint property, powers of appointment, life insurance proceeds, and spousal or marital property interests. Collectively, these provisions delineate the reach of the federal estate tax and prevent taxpayers from avoiding it through transfers that, in substance, leave control or benefit with the decedent until death.

Income tax basis rules under IRC §1014 provide an income tax basis “step-up” or “step-down” for property owned at death and included in the estate, which may or may not incentivize retaining assets until death rather than making lifetime gifts. Conversely, the gift tax regime under IRC §§2501–2524 imposes tax on lifetime transfers but permits use of the lifetime exemption, deductions and an annual exclusion before imposing a gift tax.

Finally, state probate laws govern probate necessity and procedure, legal capacity, property titling, procedures for disclaimers and validity of testamentary acts, and often intersect state family law statutes. ABA and state Rules of Professional Conduct mandate attorneys strictly adhere to fiduciary responsibilities in an effort to minimize elder abuse through undue influence of vulnerable people. Community property laws in certain states may afford additional tax planning opportunities through transmutation of assets.

Against this legal backdrop, the attorney and other advisors to a dying client must consider which transactions they can implement quickly, and which may pose too great a risk given statutory tax inclusion rules, basis step-up/down, community property considerations and ethical challenges.

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Federal Statutory Tax Provisions Affecting Deathbed Transfers

Section 2035: The Three-Year Rule

IRC §2035

The estate and gift tax exemptions are currently unified, meaning taxable gifts made during life are combined to determine a person’s remaining estate tax exemption at death. This exemption offsets the value of assets (and determines the remaining tax credit against estate tax) before application of the federal estate tax. Before the modern unified credit system, individuals could make deathbed gifts and avoid the estate tax.

The first federal estate tax (enacted in 1916) required estate inclusion for transfers made in contemplation of death, a subjective test requiring courts to weigh each specific case. The IRS had the burden to prove that the “impelling cause” for the gift was the thought of the transferor’s death, and courts, applying this subjective standard, inevitably issued inconsistent rulings (e.g., U.S. v. Wells, 283 US 102 (1931)). Congress included in Revenue Act of 1918 a rebuttable presumption that gifts made within 2 years of death were presumed in contemplation of death, yet this required courts to weigh facts when a party raised facts rebutting the presumption.  

In 1976, Congress enacted IRC §2035, which removed any subjective element from consideration and implemented the bright-line 3-year lookback rule for gifts. The rule was narrowed in the Economic Recovery Tax Act of 1981 (ERTA) so that only certain gifts made within three years are included in the estate and subject to estate tax.  

IRC §2035 provides when a decedent within 3 years of death, (i) transfers property by trust or otherwise or (ii) relinquishes a power over property, and the transferred property or property to which the right was relinquished would have been included in the decedent’s estate under IRC §2036 (retained life estates), §2037 (transfers taking effect at death), §2038 (revocable transfers), or § 2042 (incidents of ownership in life insurance policies), the property is includable in the decedent’s taxable estate.

Thus, even though our estate and gift tax systems are today “unified” and gifts during life would reduce exemptions allowed against estate tax at death, certain transfers would continue to evade taxation without IRC §2035, including transfers of life insurance policies and the release of retained benefits just before death.

Estate planners should advise clients of this strict timing rule, especially as it relates to transfers of life insurance policies, revocable trust interests, or retained-power property, because motive is not relevant in determining whether an administrator must include such value in the decedent’s estate.

Transfers of Life Insurance Within 3 Years of death

Under IRC §2042, a life insurance death benefit is included in the estate of a decedent if the decedent owns the policy at death, or the decedent retained incidents of ownership of the policy. This last phrase means that the decedent maintained legal rights related to the policy, such as the power to (i) change beneficiaries, (ii) borrow against the policy’s cash value, (iii) surrender or cancel the policy, (iv) assign the policy to someone else, (v) revoke an assignment of the policy and (vi) pledge the insurance policy as collateral for a loan.

Life insurance policies, if held in irrevocable life insurance trusts or owned by people other than the decedent, escape estate tax inclusion. Yet, if a person owns a life insurance policy and transfers it within three years of death to an individual or trust, IRC §2035 dictates that the full value of the death benefit is included in the transferor’s estate. (See Estate of Leder v. Comm., 893 F.2d 237 (10th Cir. 1989)).

A general exception to the inclusion rule of IRC §2035 is when a policy is sold for adequate and full consideration in money or money’s worth, usually valued at the policy’s interpolated terminal reserve value. Sales of life insurance policies, however, raise significant income tax concerns that the advisor must analyze. The income tax cost of triggering the Transfer for Value rule (discussed below) under IRC §101(a)(2) may offset the benefit of avoiding estate inclusion, especially since combined income tax rates can exceed the federal estate tax rate.

Transfer for Value Rule

IRC§101(a)(1) is an income tax provision that provides, “Gross income does not include amounts received under a life insurance contract, if such amounts are paid by reason of the death of the insured.” This reflects the long-standing policy that life insurance proceeds payable at death are treated as a nontaxable return of capital and as a means of family protection rather than income realization.

IRC §101(a)(2), however, provides an exception to the rule under §101(a)(1). Subsection (a)(2), referred to as the transfer-for-value rule,  provides that when a life insurance policy is sold for valuable consideration, the proceeds are taxable as ordinary income less (i) the amount the transferee paid for the policy and (ii) any subsequent premiums paid by the transferee, unless certain statutory exceptions.  Thus, the amount of death benefit over and above the amount paid to purchase the policy and premiums paid by the buyer is includable in taxable income and taxed to the buyer upon receiving the death benefit.

Congress provided several statutory exceptions that preserve the exclusion when the transfer is motivated by legitimate business or ownership reasons. The transfer-for-value rule does not apply to transfers (1) to the insured, (2) to a partner of the insured, (3) to a partnership in which the insured is a partner, (4) to a corporation in which the insured is a shareholder or officer, or (5) where the transferee’s basis in the policy is determined by reference to the transferor’s basis (gift transfers).

Deathbed Planning Strategies for Life Insurance Policies

Due to the limitations posed by IRC §2035 and §101(a)(2), few viable transfer options exist for deathbed planning involving life insurance policies when a person has a taxable estate. Since deathbed planning, by definition, involves planning just before a person’s death, gift transfers to family members, irrevocable trusts, or other individuals less three years before death have no beneficial effect on the calculation of the estate tax. Also, due to advanced illness, cancellation of an existing policy in favor of purchasing a new policy not subject to estate tax is impracticable, because insurers will not issue a policy to a terminal insured.

When no other practical method of holding life insurance outside the estate is available, a policy owned by the insured can still serve a useful purpose by providing liquidity to pay estate taxes, other estate obligations, or additional liquidity for heirs. In addition, if the client is charitably inclined, designating a qualified charitable organization as the policy’s beneficiary allows the estate to claim a charitable deduction equal to the value of the death benefit passing to that charity.

State Estate Tax Law Considerations

It is important to note that most of the states that have a separate estate tax do not claw back gifts made within three years of death, New York is currently the sole exception. Although it does not have a separate gift tax, under Tax Law § 954(a)(3), taxable gifts made by a New York resident within three years of their death are added back into the decedent’s New York gross estate for state estate tax purposes—even though they are excluded from the federal gross estate.

Retained Powers Subject to IRC §2036 through IRC §2038

The retained powers provisions of IRC §2036 through IRC §2038 represent Congress’s effort to prevent transfers in name only when the decedent continues to hold the strings of control or enjoyment until death. Since the inception of the estate tax in 1916, courts and Congress recognized that without such rules, taxpayers could erode the estate tax base by shifting legal title while keeping the practical benefits of ownership.

The legislative history spanning the 1930s through the 1954 Code reveals Congress’s repeated frustration with formalistic estate-planning devices that undermined the intended reach of the estate tax. In response, Congress enacted a series of provisions, now codified in IRC §2036 through IRC §2038, that embody a substance-over-form approach. These sections look beyond nominal transfers and legal formalities to include in the gross estate property that the decedent continued to control or enjoy economically until death.

Under IRC §2036, property is includable in the decedent’s estate if the transferor retained the right to income, enjoyment, or control over the property until death. IRC §2037 requires inclusion when the transferee’s possession or enjoyment depends on surviving the transferor and the transferor retains a reversionary interest. IRC §2038 captures transfers where the decedent retained the power (alone or in conjunction with others) to alter, amend, revoke, or terminate the beneficial interests. These provisions ensure that property is included in the gross estate whenever, despite formal transfer, the decedent retained sufficient dominion, control, or benefit such that the property was, in substance, still part of the decedent’s estate at death.

IRC §2036: Retained Enjoyment

Congress enacted IRC §2036 to prevent taxpayers from making what courts called “illusory transfers” - giving away formal title while keeping the practical benefits of the transferred property. Without IRC §2036, a person could “give away” a business, home or other asset, while continuing to live in the home or receive income from the business or other asset, effectively defeating the estate tax.

IRC §2036 provides that the value of the gross estate shall include the value of all property transferred by a decedent, by trust or otherwise, when he has retained (i) the possession or enjoyment of, or the right to income from, the transferred property or (ii) the right, either alone or with any other person, to designate the person(s) who shall possess or enjoy the property or income derived from the property. The statute excepts bona fide sales of assets for adequate and full consideration in money or money’s worth from inclusion.

Deathbed planning is especially vulnerable to IRC §2036. For example, IRC §2036 is of particular relevance when considering late-in-life transfers of interests in family entities claiming valuation discounts.  Other last minute estate freezes involving irrevocable trusts, such as Grantor Retained Annuity Trust (GRAT) and Qualified Personal Residence Trust (QPRT), also invite heightened scrutiny and may risk estate inclusion if the decedent retained interests or timing suggests the transfer was testamentary in nature rather than genuine in effect. Keep in mind that in order to be an effective wealth transfer technique, the grantor must survive the term of the GRAT or QPRT.

From 1999-2005, a series of cases originating in Tax Court and reaching conclusion in the 5th Circuit Court of Appeals, addressed the question of whether IRC §2036 requires assets transferred to a family limited partnership are includable in a decedent’s estate, and whether the limited partnership in the case was a bona fide business or a mere testamentary substitute. (Estate of Strangi v. Commissioner, 417 F.3d 468 (5th Cir. 2005)). In Strangi, a decedent transferred nearly all his assets into a family limited partnership via his son-in-law acting as his agent under a Power of Attorney two months before his death and retained significant control over the assets through partnership agreements.  The IRS argued that the transfers had no observable business purpose and that the plan was solely a device to reduce estate taxes. The court found that despite formal pre-death transfers, the decedent effectively continued to enjoy the property, in that, among other things, he paid personal expenses from the partnerships and continued to live in a home transferred to the partnership. The trial court held that the “bona fide sale” exception did not apply because there was no meaningful nontax purpose for the transfer. Strangi, in the court’s estimation, retained an implied agreement to continue benefiting from the assets. The appeals court affirmed and further held the assets were includable because Strangi retained control over distribution decisions via his son-in-law acting in the role of general partner.  The implication of Strangi is that deathbed transfers to FLPs are at risk and may face strict scrutiny by the IRS.

In sum, IRC § 2036 functions as one of the most potent anti-abuse provisions in the estate tax regime, ensuring that transfers lacking genuine economic substance do not escape taxation merely through formal recasting. The Strangi line of cases illustrates how courts look beyond technical compliance to determine whether the decedent truly relinquished control and enjoyment of the property. In the context of deathbed planning, where transfers are often hastily executed and motivated by imminent tax concerns, the government’s scrutiny is especially acute. Advisors must therefore ensure that any late-life restructuring, whether involving family limited partnerships, GRATs, or other irrevocable vehicles, demonstrates a bona fide non-tax purpose, real economic substance, and a clear separation of control and benefit from the transferor. Absent these elements, IRC §2036 will operate to disregard the form of the transaction and include the transferred assets in the decedent’s taxable estate, reaffirming Congress’s intent that the estate tax apply to wealth that, in substance, remained under the decedent’s dominion and control until death.

Section 2038: Revocable Transfers

Like IRC §2036, IRC §2038 is another “retained strings” statute that brings gifted assets back into the taxable estate. Specifically, IRC §2038 provides that the value of property is included in the decedent’s estate if, at death, the decedent held the power - alone or with another person - to (i) alter, amend, revoke or terminate the transfer, or (ii) otherwise change the enjoyment of property or its income.

Section 2038 ensures that transfers subject to revocation or modification by the decedent, such as revocable transfers, retained powers of appointment, and rights to amend are includable in the estate. This is especially relevant to “retained power” cases where control is shared with family members. Note that, even if the decedent refrained from using the power before death, mere possession of the power to change beneficiaries or terms of enjoyment will cause inclusion.

For this reason, assets held in revocable trusts and property in trusts in which the grantor reserves the right to change the beneficiaries of the trust are includable in the estate. IRC §2038 is distinct from IRC §2036 in that the statute focuses on maintaining control over the assets rather than retaining enjoyment of the assets.

To illustrate, in Estate of Lober v. US, 346 US 335 (1953), trustees, including the decedent, had discretionary powers to distribute income among beneficiaries. The court was asked to consider whether, under a predecessor statute to IRC §2038, if the decedent’s power as trustee, shared with his two children, caused inclusion of the assets in his estate due to him retaining the power to alter, amend, revoke or terminate an interest in the trust.  The case moved its way to the US Supreme Court which, affirming the 3rd Circuit Court of Appeal, held that yes, the discretionary power held in conjunction with others was sufficient for him to affect beneficial enjoyment of the property and thus, the trust property was includable in his estate and subject to estate tax.  Had the decedent retained the power with adverse parties, the ruling may have come out differently.

In Estate of Powell v. Commissioner, 148 T.C. No. 18 (2017), a decedent contributed cash via her son acting as agent under a Power of Attorney to a family limited partnership seven days before her death, retaining only a limited partnership interest. The son took a general partner interest in the entity. Immediately after the contribution, the limited partnership redeemed Ms. Powell’s interest in the limited partnership in exchange for a note entitling her to redemption proceeds. The Court held that the trust assets were includable in the decedent’s estate under IRC §2036(a)(2), IRC §2038(a)(1), and based on substance over form principals. The court noted that the decedent effectively retained the power to terminate or alter enjoyment of the transferred assets through her son-in-law acting as the general partner. The implication is that deathbed gifts, even with shared powers of revocation, may trigger estate inclusion, so caution must be exercised.

Section 2037: Transfers Taking Effect at Death

IRC §2037 causes inclusion of assets in the decedent’s estate in two situations.  First, when a transfer is made to an individual or trust and the transferee’s possession or enjoyment of the property is dependent on the beneficiary surviving the decedent.  Second, the decedent retains a reversionary interest in the property that immediately before death was greater than 5% of the property’s value.  In other words, if the beneficiary predeceases the decedent, the right to enjoy the property may revert to the decedent.

Beginning with Klein v. United States, 283 U.S. 231 (1931), the Supreme Court established that a transfer contingent on the beneficiary’s survival is testamentary in substance because the decedent’s death fixes enjoyment. Later cases such as Estate of Field v. Commissioner, 324 U.S. 113 (1945) and Estate of Church v. Commissioner, 335 U.S. 632 (1949) reaffirmed inclusion where possession or enjoyment could take effect only at death, emphasizing that a mere possibility of reverter suffices to render the transfer incomplete. Congress codified and narrowed Klein through IRC §2037 by requiring that the actuarial value of the retained reversion exceed five percent of the property’s value, a limitation illustrated in Estate of Uhl v. Commissioner, 241 F.2d 867 (7th Cir. 1957), which excluded property where the reversion’s value was too remote. Subsequent decisions have applied the statute mechanically, valuing the retained reversion immediately before death and finding inclusion whenever the survivorship condition and 5% threshold are both met.

Although IRC §2037 is less commonly litigated than §§2036 and 2038, it represents Congress’s concern with arrangements that defer the ultimate disposition of property until after the death of the transferor and preserves the estate-tax reach over what are essentially testamentary dispositions.

Basis Step-Up or Step-Down under Section 1014

Overview

IRC §1014 occupies a pivotal role at the intersection of income and estate taxation. The statute provides that property included in a decedent’s estate and acquired from a decedent generally receives an income tax basis equal to the fair market value of the property on the date of the decedent’s death (or, if elected, the alternate valuation date). This step-up (or step-down) in income tax basis eliminates built-in gain or loss for heirs and provides a new tax basis from which the beneficiary calculates depreciation deductions and capital gains.

Property acquired from a decedent refers to (i) property acquired by bequest, devise or inheritance, (ii) property passing by revocable trust or estate, (iii) a surviving spouse’s share of community property and (iv) property required to be included in the gross estate under estate tax rules, which may include IRC §2036 property discussed above, life insurance under IRC §2042, and general powers of appointment held by the decedent.

Basis step-up is a generous benefit and often outweighs the benefits of deathbed gifting. Since recipients of lifetime gifts take a carryover basis in the property received, practitioners advising terminally ill clients are wise to carefully consider whether estate tax or income tax minimization is more valuable to the heirs, especially when (i) the heirs intend to sell the asset shortly after a decedent’s death or (ii) when the asset is real estate and the increased depreciation deductions may operate to offset income produced by the asset.

It should be noted that certain properties, 401(k)s, IRAs and accrued but unpaid wages, rents and dividends, do not receive a basis step-up even if inherited and included in a decedent’s taxable estate.  These assets are referred to a “income in respect of a decedent” (IRD property) and are subject to both income and estate taxation. Also importantly, if an asset has depreciated, and the fair market value is less than the decedent’s tax basis in the assets at death, the new tax basis is decreased to fair market value as of the decedent’s date of death (or the alternate valuation date).

IRC §1014(e) Basis Step-Up Anti-Abuse Rule

Section 1014(e), an anti-avoidance rule, eliminates the basis step-up in situations in which a person transfers an appreciated asset to the decedent and the asset reverts to the original transferor at the decedent’s death within one year of the transfer.

The policy concern animating §1014(e) is straightforward. Without a limitation, taxpayers could simply “swap” low-basis assets into the estate of a dying person, achieve a basis step-up, and have those same assets pass back to the donor or their spouse eliminating built in gain and providing the transferor with basis from which to achieve depreciation deductions, both which provide significant income tax benefits. Congress saw this as an artificial basis reset disconnected from any genuine transfer of wealth and closed the door with a one-year lookback rule. Under this provision, if a donor transfers appreciated property to a decedent within one year of death and the property returns to the donor or the donor’s spouse, no step-up is permitted, and the property takes a carryover basis instead.

In practice, the one-year rule creates several traps. The most obvious is the circular spousal transfer. Consider the husband in a separate property state who gifts highly appreciated stock to his terminally ill wife with the aim of receiving a full basis adjustment upon her death. If she dies within the year and bequeaths the stock back to him, IRC §1014(e) applies, and the husband reacquired the stock with his original carryover basis. The statute can also reach indirect transfers routed through trusts or other entities if the property ultimately makes its way back to the donor or the donor’s spouse.

Practical Planning Considerations

IRC §1014(e) does not foreclose all deathbed transfers. Transfers to children and people other than the donor and the donor’s spouse, are not subject to IRC §1014(e). This distinction underscores the targeted nature of the rule. It is designed to prevent tax-free “round trips” rather than to eliminate basis adjustments altogether.

When an asset has a built-in loss and would result in a basis step-down at the decedent’s death, practitioners often advise clients to dispose of loss assets before death, harvesting the loss for income tax purposes, rather than lose the valuable tax benefit by including the asset in the estate.

Planners should identify low-basis assets, anticipate survivorship issues, and structure transactions in ways that do not route property back to the donor or spouse within the statutory period. The art lies in balancing the technical rules with the human realities of illness, mortality, and family circumstances.

Section 2055: Charitable Gifts at the End of Life

IRC §2055(a) allows an unlimited deduction from the gross estate for the value of property transferred by will, trust, beneficiary designation, or other testamentary instrument to qualified entities. Eligible recipients include:

• The United States, states, and political subdivisions for exclusively public purposes.
• Domestic nonprofit corporations and trusts organized for religious, charitable, scientific, literary, or educational purposes.
• Certain veterans’ organizations, fraternal organizations, and other qualified entities.

The deduction applies regardless of amount, so long as the transfer is outright, and the charity’s interest is not subject to conditions that make the value speculative. When property is split between charitable and noncharitable beneficiaries, the deduction is allowed only for the portion passing to charity, subject to complex valuation rules under IRC §2055(e) and IRC §664 (which govern split-interest trusts such as charitable remainder trusts and charitable lead trusts) when the value is quantifiable. Foreign charities are also eligible recipients provided they meet the qualifications under IRC §2055(a).

Deathbed Charitable Transfers

The estate tax charitable deduction is uniquely suited to deathbed planning because it requires no lifetime gifting program, no annual exclusions, and no long-term commitments. A terminally ill taxpayer may alter a will or trust to include charitable bequests, thereby securing an estate tax deduction that immediately offsets inclusion of the same property in the gross estate. In fact, a decedent facing a significant estate tax burden can reduce liability to zero by directing wealth to charity.

This stands in sharp contrast to the income tax charitable deduction under §170, which is limited by percentage caps, subject to adjusted gross income restrictions, and provides little benefit to lower-income taxpayers in their final year.

Courts treat deathbed charitable transfers under the same substantive standards as lifetime charitable gifts. As noted above, the charitable interest must be legally complete, vested, and ascertainable at death. In cases like Comm. v. Estate of Holmes, 326US 480 (1946) and Estate of Spiegel v. Comm. 335 US 701 (1949), courts denied deductions because the decedent retained powers to revoke or amend, rendering the charitable interest contingent until death. By contrast, the court in Estate of Marine v. Comm., 97 TC 368 (1991) upheld deductions for trusts executed immediately before death where the charitable remainder was irrevocably fixed, and the property was includible in the estate. Thus, under IRC §2055, deathbed timing is not in itself problematic, but retained control, uncertainty, or failure to complete the transfer before death will preclude the deduction.

Practical Planning Considerations

Though the charitable deduction is generous in its unlimited nature, deathbed gifts require careful planning to ensure the gift is eligible for the deduction and other client goals are met. Considerations include the following:

• Charitable bequests must be valid under state law and properly documented in testamentary instruments. Last-minute changes to wills or trusts must meet execution formalities and failure to comply risks litigation or invalidation.
• The deduction requires that the charity receive an ascertainable interest at death. Conditional gifts, or gifts subject to excessive private control, may be disallowed. Deathbed planning must therefore ensure that transfers are drafted with precision, leaving no ambiguity about the charity’s entitlement and the value and/or asset to which it is entitled.
• Charitable bequests can interact with marital deduction planning under IRC §2056. For couples with taxable estates, the choice between leaving assets to a spouse (tax-free under IRC §2056) or to charity (deductible under IRC §2055) depends on overall objectives. At the deathbed stage, practitioners must weigh whether shifting assets to charity is preferable to reliance on the marital deduction and portability of the deceased spouse’s unused exemption (DSUE).
• Because charitable organizations generally pay no income tax, leaving IRD assets to charity eliminates forced income tax recognition imposed on individual recipients of such assets.  If a terminal client has charitable goals, using IRD assets to fund charitable gifts, while leaving assets eligible for the basis step-up under IRC §1014 to other individual beneficiaries can result in a better overall outcome for all beneficiaries.

Comparison of State Legal Frameworks

Deathbed planning poses unique challenges and opportunities under federal tax regimes (e.g., IRC §1014, IRC §§2036–2038, and IRC §2055) discussed above. The effectiveness, enforceability, and risk of such strategies also depend substantially on state law, which governs issues like wills, trusts, probate, gifts, incapacity, and fiduciary duties. Because state legal frameworks vary dramatically, planners must understand not only the federal tax implications, but also the state-law implications.

In comparing state regimes, several themes emerge as especially relevant to deathbed planning:

• Probate and nonprobate mechanisms: Some states make it easy (or harder) to shift assets outside probate— via revocable trusts, titling of assets, payable on death accounts, community property laws, and other mechanisms.
• Formalities and execution of wills and trusts: The valid execution of last-minute wills or codicils may be constrained by state-specific witnessing or “harmless error” statutes.
• Statutory gift and anti-fraud rules: States often impose lookback periods or power-of-attorney constraints that may limit deathbed gifts or transfers.
• Fiduciary and undue influence doctrines: State standards for proving undue influence or protecting vulnerable persons differ, making last-minute changes more or less contestable.
• Incapacity, guardianship, and advance directives: The ease with which a dying individual can sign or amend documents depends on the state’s incapacity statutes, power-of-attorney regimes, and procedural protections.
• Adoption of uniform or model acts: Some states adopt (or reject) the Uniform Probate Code, Uniform Trust Code, or harmless error will statutes, leading to variation in how flexible state courts are in recognizing late changes or validating imperfect instruments.

A client’s state of domicile or asset location can profoundly affect whether a deathbed plan is viable, defensible, or even legal. What follows, highlights several unique state-law considerations involving deathbed planning, comparing how different jurisdictions handle these issues, and the pitfalls and planning best practices at the intersection of state and federal regimes.

California Community Property and the Presumption of Undue Influence

Deathbed planning often involves last-minute efforts to realign ownership and control of property in anticipation of death. In California, two distinct yet frequently overlapping doctrines shape the analysis of such strategies: (i) the law of marital property transmutations, which governs when and how spouses may change the character of community or separate property, and (ii) the presumption of undue influence, which protects vulnerable individuals from overreaching by interested parties at moments of dependency or diminished capacity. Though analytically separate, both doctrines share a common policy concern of preventing the exploitation of a confidential relationship to achieve results inconsistent with true intent.

Transmutation of the Character of Property

California is a community property state. In simple terms, both spouses are treated as owning anything earned or acquired during the marriage regardless of title or who earned the income held as cash or used to acquire other property. Separate property by contrast is property acquired before marriage or after separation, inherited property and gifts, and income derived from separate property.

The law treats both spouses as having equal management and control over community property and one spouse cannot unilaterally change the character of property (from community to separate or vice versa) without strict compliance with statutory requirements.

Transmutation of property means that spouses can convert a property’s character from separate to community or vice versa by express agreement. California Family Code §852 provides, “A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.”  Thus, transmutation must be written to be effective under California law. Oral statements, informal writings, or implied conduct do not suffice. This strict rule complicates deathbed attempts to shift property interests between spouses for tax or succession purposes.

In Estate of MacDonald, 51 Cal. 3d 262 (1990), a husband executed IRA beneficiary designation forms naming his wife, but the form lacked express language of transmutation. The court considered whether the beneficiary designation changed the community property character of the asset, and ultimately held no, the form did not satisfy the requirements of California Family Code §852.  The court required “an express written declaration” of transmutation and stated that boilerplate or vague references were insufficient. Deathbed transfers between spouses are often ineffective without strict statutory compliance, leaving estates vulnerable to litigation.

Also, because a transmutation is treated as a gift from one spouse to the other spouse, converting separate property into community property shortly before death might run afoul of §1014(e) (described above) if the transmutation occurs within one year of the transferor’s death negating the basis step-up.

Presumption of Undue Influence

California Probate Code §21380 creates a powerful presumption against gifts to certain high-risk recipients, such as caregivers and drafters. Specifically, the statute provides, “A provision of an instrument making a donative transfer to any of the following persons is presumed to be the product of fraud or undue influence: (1) The person who drafted the instrument, (2) a care custodian of a dependent adult, or (3) a person who is a spouse, domestic partner, cohabitant, or employee of such drafter or care custodian.”

This rule reflects California’s long-standing response to elder financial abuse, particularly cases in which caregivers or drafters secure last-minute windfalls from dependent adults. The presumption applies broadly, even when the relationship between the transferor and recipient was long-standing, intimate, or affectionate, and even when there is subjective evidence of genuine care.

In Bernard v. Foley, 39 Cal. 4th 794 (2006), the California Supreme Court applied this rule to invalidate multimillion-dollar gifts made to two longtime friends who had cared for the decedent during her final illness. Rejecting the argument that personal friendship exempted them from the statute, the Court held that the term “care custodian” includes nonprofessional caregivers, and that the Legislature intended to protect dependent adults even from those acting out of affection. The Court emphasized that the policy of preventing abuse outweighs individual assessments of motive or intimacy, underscoring the law’s protective, rather than punitive, purpose.

In practice, California practitioners must assume that any deathbed transfer to a caregiver, drafter, or related person will be presumed invalid under California Probate Code §21380 and subject to challenge in probate proceedings. The statute thus embodies a legislative judgment that the risk of exploitation in end-of-life transfers outweighs the value of unfettered testamentary freedom. By codifying this presumption, California places elder protection above donative autonomy, signaling that true intent at life’s end must be proven, not presumed.

Hawaii Mandates Strict Formalities in Will Execution

In Hawaii, end-of-life planning operates within a legal framework that places emphasis on the formal execution of wills. Unlike jurisdictions that have adopted substantial-compliance or harmless-error doctrines, Hawaii continues to adhere closely to traditional requirements of testamentary formalities. The statutory scheme, derived from the Hawaii Probate Code and rooted in centuries-old common-law safeguards, demands precise adherence to prescribed steps - written form, signature, and attestation by competent witnesses - in order for a will to be valid. These strict formalities serve dual purposes, ensuring authenticity and preventing fraud or undue influence at a moment when the testator’s intentions are most susceptible to challenge.

Hawaii Revised Statute §560:2-502(a) provides, “A will shall be in writing, signed by the testator or in the testator’s name by some other individual in the testator’s conscious presence and by the testator’s direction, and signed by at least two individuals, each of whom signed within a reasonable time after witnessing either the signing of the will or the testator’s acknowledgment of that signature or acknowledgment of the will.”

Courts in Hawaii require strict adherence to the statutory witness requirement, leaving little room for “harmless error” doctrines. This makes a last-minute will execution in hospitals or at home particularly precarious in Hawaii.

In In re Estate of Herbert, 90 Haw. 443 (1999), a testator attempted to execute a will with only one witness present. The family argued that the will reflected his true intent. The court, emphasizing the statutory will requirements are mandatory and not optional, considered whether the will could be validated despite the absence of two witnesses. The court held the will was invalid, stating that Hawaii strictly enforces will execution statutes, leaving no room for equitable exceptions in deathbed scenarios.

Similarly in In re Estate of Holt, 95 Haw. 289 (2001), a decedent’s will failed to comply with witness formalities, though testimony established his testamentary intent. The trial court found that substantial compliance does not suffice to make a valid will. The Hawaii Supreme Court affirmed the trial court in Herbert, holding that testamentary intent cannot substitute for statutory compliance.

Florida’s Doctrine of Undue Influence

Few doctrines shape Florida probate litigation as profoundly as undue influence. Rooted in equity and developed extensively through case law, Florida’s undue influence doctrine seeks to protect vulnerable testators from coercion, manipulation, or overpersuasion in the execution of wills, trusts, and beneficiary designations. While influence is inherent in many close relationships, the law distinguishes between legitimate persuasion and conduct that overbears a testator’s free will. Under the seminal case In re Estate of Carpenter, Florida courts applied a rebuttable presumption of undue influence when certain “Carpenter factors” are present -typically involving active procurement by a substantial beneficiary standing in a confidential relationship with the decedent. Once raised, the presumption shifts the burden to the proponent to prove that the document reflects the decedent’s true, voluntary intent. In deathbed or crisis planning contexts, this presumption often becomes the central battleground, as diminished capacity, dependency, and isolation heighten judicial scrutiny of late-stage testamentary changes.

Florida Statute §732.5165 provides simply, “A will is void if the execution is procured by fraud, duress, mistake, or undue influence.”

In In re Estate of Carpenter, 253 So. 2d 697 (Fla. 1971), a decedent executed a will naming her daughter as principal beneficiary. Evidence showed the daughter had arranged the drafting and execution of the will. Other family members contested on grounds of undue influence. The court in that case designated seven factors that establish a presumption of undue influence in will contests now referred to as the “Carpenter Factors.”

• Presence of the beneficiary at execution of the will.
• Presence of the beneficiary when the testator expressed a desire to make a will.
• Recommendation of the attorney by the beneficiary.
• Knowledge of the contents of the will by the beneficiary prior to execution.
• Giving of instructions on preparation of the will by the beneficiary.
• Securing of witnesses to the will by the beneficiary.
• Safekeeping of the will by the beneficiary after execution.

The Court held that where several of these factors are present, a presumption of undue influence arises, shifting the burden of proof to the proponent of the will. Florida is one of the most protective states against elder exploitation, and deathbed wills benefiting caregivers or dominant relatives are especially vulnerable.

New York’s Formalism and Gifts Causa Mortis

New York’s approach to deathbed transfers reflects a deep commitment to formalism and a cautious skepticism toward informal expressions of donative intent. The state’s Estates, Powers and Trusts Law enforces strict formalities for testamentary instruments and sharply limits exceptions that might blur the boundary between wills and inter vivos gifts. New York law demands strict compliance with statutory requirements governing wills, codicils, and testamentary substitutes, rejecting doctrines of “substantial compliance” or “harmless error” that have softened formalities in other jurisdictions. This approach prioritizes objective proof—written instruments, witness signatures, and attestation clauses over subjective evidence of intent, ensuring that testamentary acts are verifiable and resistant to fraud or post-mortem manipulation. While this rigidity can produce harsh outcomes, particularly in deathbed situations where intent is clear but procedure imperfect, New York courts have consistently emphasized that predictability and prevention of abuse outweigh the equitable desire to validate informal expressions of donative intent. In this way, New York’s formalism serves both as a shield against opportunism and a reminder that testamentary freedom exists only within the boundaries of form.

Even with its adherence to formalism, New York preserves a narrow equitable doctrine recognizing gifts causa mortis—conditional gifts made in contemplation of imminent death. These transfers occupy a precarious legal space in that they are valid only if the donor faces a real and immediate peril, intends the gift to take effect upon death, and dies from that peril without revoking the gift. Courts strictly construe these elements, viewing such gifts as “dangerous to title” and prone to abuse, particularly in the absence of formal documentation or witness corroboration. In the deathbed planning context, New York’s insistence on procedural precision, while entertaining the narrow gifts causa mortis exception, underscores the enduring tension between equitable intent and formal certainty.

The court in In re Estate of Kumstar, 66 N.Y.2d 691 (1985) held that strict compliance and noted that deathbed transfers are subject to heightened scrutiny. It further held that proponents of will bear a heavy evidentiary burden to prove validity when suspicious circumstances surround will execution.

In Gruen v. Gruen, 68 N.Y.2d 48 (1986), a father wrote letters to his son, gifting him a valuable Gustav Klimt painting while retaining possession of the painting for his life. After the father’s death, a dispute arose over whether this was a valid inter vivos gift. The court considered the issue of whether a gift of future possession, reserving a life estate, constituted a valid inter vivos transfer. The court held that the gift was indeed valid. The Court of Appeals emphasized that although possession was deferred until death, the gift constituted delivery of a present ownership interest.

While this approach may frustrate equity in close cases, it reflects the state’s enduring judgment that the clarity of formal acts is the surest protection against fraud, undue influence, and the distortion of a decedent’s final wishes.

Texas Homestead Laws and Spousal Protections

Texas is famous for its robust homestead doctrine, a constitutional and statutory framework that shields a family’s principal residence from forced alienation and many creditor claims. In the deathbed and estate-planning context, however, the homestead protections interact with a parallel set of spousal rights that govern occupancy, inheritance, and priority over competing claims. The combined effect is to afford the surviving spouse formidable defenses—often irrespective of the decedent’s testamentary directives—ensuring that the home remains available as a sanctuary for the family.

The Texas Constitution prohibits selling or encumbering a homestead without joinder and provides spouses the exclusive right to occupy the homestead, the non-partitionable nature of the homestead during the survivor’s life, and the statutorily mandated set-asides and allowances that prioritize the surviving spouse and minor children. Taken together, these rules testify to Texas’s enduring policy to protect the home as a bedrock of familial stability.

In Estate of Hanau v. Hanau, 730 S.W.2d 663 (Tex. 1983) a decedent attempted to devise the family homestead to individuals outside the immediate family. Surviving spouse and minor children contested. The question addressed by the court was whether homestead rights override testamentary disposition, and the court held that constitutional and statutory protections guaranteed homestead rights to surviving family members. The Texas Supreme Court held that deathbed wills cannot override homestead protections, which are embedded in Texas constitutional law. In Texas, family protections prevail over late-life testamentary intent, particularly with respect to homestead property.

Washington Mandates Fiduciary Duties in Family-Assisted Planning

Washington law places particular emphasis on the fiduciary obligations that arise when family members participate in a loved one’s estate or financial planning, especially in periods of illness, dependency, or diminished capacity. Rooted in equitable principles and reflected across Washington’s trust, probate, and community-property frameworks, these duties require parties who occupy a position of confidence - spouses, children, agents under powers of attorney, or caregivers - to act with the utmost good faith, loyalty, and fairness toward the vulnerable individual. The state’s courts have repeatedly held that transactions orchestrated by such fiduciaries are subject to close scrutiny and, when challenged, presumed invalid unless the fiduciary can demonstrate full disclosure, independent advice, and voluntary consent.

In the context of deathbed or family-assisted planning, this fiduciary overlay protects elders from overreaching by trusted relatives while simultaneously imposing a demanding evidentiary burden on those who facilitate last-minute transfers, gifts, or estate revisions.

In In re Estate of Lint, 135 Wash. 2d 518 (1998), a son assisted his elderly mother in preparing a will that left him substantial assets. Other heirs challenged on grounds of undue influence. The court considered whether fiduciary duties exist when family members assist in execution of testamentary documents and held that fiduciary duties arise when a confidential relationship exists. The Washington Supreme Court held that where a fiduciary or confidential relationship exists, transactions are presumptively invalid absent clear and convincing evidence of fairness.

Other Practical Considerations for Deathbed Planning

Advising clients in the final stages of life presents both an opportunity and a risk. On one hand, estate planning implementation can reduce tax burdens, preserve family wealth, and simplify administration. On the other, actions taken too late or taken without sensitivity to state property regimes, federal tax doctrines, and procedural pitfalls can trigger litigation, loss of tax benefits, and increased tax liability. Five categories of considerations are especially salient in the end-of-life context: asset titling, beneficiary designations, inter vivos gifts, estate liquidity and spousal elective share.

Asset Titling

In modern estate planning, the form of title is as determinative as the dispositive documents themselves. Even the most sophisticated testamentary scheme can fail if the ownership form -whether joint tenancy, community property, tenancy in common, trust title, or business entity form - does not correspond to the intended plan of distribution. Titling governs not only who inherits but how and when assets transfer, often overriding the provisions of wills and trusts by operation of law.

Jointly held property with rights of survivorship, for example, bypasses probate and vests automatically in the survivor, while assets titled solely in the decedent’s name may require formal administration despite contrary estate documents. Tenancy in common interests pass through the decedent’s probate estate in many states.  Proper titling also determines the income-tax basis at death and influences whether property receives a full or partial step-up, a distinction that can translate into significant capital-gains savings for surviving spouses and other heirs. In community-property jurisdictions, titling decides whether an asset qualifies for the double basis adjustment under IRC §1014(b)(6) and in common-law states, it affects the scope of elective-share rights and creditor exposure.

From a transfer-tax perspective, title may define estate inclusion by identifying the reach of retained-interest provisions, and determines whether valuation discounts, marital deductions, or charitable bequests will survive scrutiny. Accordingly, asset titling is not a ministerial afterthought but a substantive act of estate design.

In the context of deathbed planning, the form of title becomes the fulcrum on which both tax results and dispositive intent turn. When the client’s remaining lifetime is measured in days or weeks rather than years, the technical act of retitling assets often matters more than any new testamentary instrument that can be drafted. Ownership form controls whether property passes under the will, by trust distribution, or by operation of law. Joint tenancy accounts, transfer-on-death deeds, pay-on-death designations, and late-created revocable trusts can completely override carefully worded testamentary provisions if not coordinated. Conversely, prompt retitling can ensure eligibility for the IRC §2056 marital deduction or IRC §2055 charitable deduction.

At the end of a person’s life, titling may be the act of execution. After death, there is no time for reformation petitions, disclaimers, and corrective funding. The final ownership records - bank accounts, deeds, partnership interests, and beneficiary designations - may become the estate plan itself.

Beneficiary Designations

In the compressed timeline of deathbed planning, beneficiary designations often determine how wealth is transferred more than a will or trust, yet they are frequently overlooked. Life insurance policies, retirement accounts, annuities, payable-on-death (POD) and transfer-on-death (TOD) accounts all operate outside of probate and pass by contract, not by testamentary instrument. Because these assets transfer by operation of law at the moment of death, the named beneficiary, not the estate plan, controls disposition. This feature can undo a carefully balanced tax and liquidity strategy if, for example, an outdated designation leaves a former spouse or predeceased individual as beneficiary, forcing the proceeds into the estate and triggering inclusion of IRD property that is subject to both estate tax and income tax.

At the deathbed stage, beneficiary designations also govern the tax character and eligibility for deductions. A last-minute revision naming a spouse or charity can preserve the marital deduction (IRC §2056) or charitable deduction (IRC §2055) for assets that would otherwise be subject to estate tax, but timing and documentation are critical.  Retirement account designations determine whether heirs may employ post-death stretch rules or face immediate taxation under IRC §401(a)(9). In community-property states, failing to secure spousal consent to a beneficiary change can create a post-mortem dispute or partial inclusion in the estate, eroding both tax efficiency and family harmony.

Ultimately, beneficiary designations function as the private title system of modern estate planning. They are binding, self-executing, and often dispositive of the largest components of an estate. In deathbed planning—when there is no time to fund trusts, record deeds, or draft codicils, verifying and aligning these designations with the overall plan is the single most effective act of control remaining to the client. The practitioner who overlooks these assets may discover that the estate’s most elegant documents are powerless against a single outdated form on file with an insurance company or custodian.

Inter Vivos Gifts

Lifetime gifting remains a core estate tax reduction strategy, but in the deathbed context it carries heightened risk. Valuation discounts for closely held entities, fractional interests, or minority shares may be challenged under IRC §2036 through IRC §2038 if the transfer lacks a bona fide business purpose or occurs so near death that the decedent is deemed to have retained enjoyment or control.

Deathbed Gifts by Personal Check

Special difficulties arise with gifts by check. Under Rev. Rul. 96-56, a gift by check is not complete unless (i) the check is paid or accepted by the bank during the donor’s lifetime or (ii) the date the donor has so parted with control that the donor cannot stop payment, provided the check is deposited, cleared and honored before the donor’s death.  

If the donor dies before the check clears, the IRS may treat the gift as incomplete and include the amount payable in the estate. To avoid this, practitioners often use wire transfers, certified checks, or immediate title transfers for end-of-life gifting.

Planning for Estate Tax Liquidity

Liquidity is often the Achilles’ heel of estate administration. Clients with closely held businesses, real estate, or illiquid investments may face significant estate tax obligations without sufficient cash to pay them. Section 6166 provides a potential lifeline, permitting the deferral of estate taxes attributable to closely held business interests for up to 14 years. However, qualifying for §6166 requires that the business constitute at least 35 percent of the adjusted gross estate, and qualification for and administration of the deferral is complex. Deathbed planning should therefore include an inventory of illiquid assets and a candid assessment of whether §6166 may be invoked.

Grantor trusts offer additional flexibility. Because the grantor is treated as owner for income tax purposes, practitioners may recommend swapping low-basis assets in the trust for high-basis or cash assets held by the grantor before death. This maneuver shifts appreciated property into the taxable estate, allowing a step-up at death, while moving cash or high-basis property out to the trust beneficiaries. In the end-of-life context, such swaps can preserve liquidity for the estate and maximize basis step-up for heirs.

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Ethical Tensions in Deathbed Planning

Attorney Professional Responsibility in Crisis Situations

Attorneys called to a deathbed encounter a professional landscape marked by urgency, family conflict, and compromised client capacity. The ABA Model Rules of Professional Conduct provide the foundation for guidance, while state-specific laws add further constraints. At stake is not only the validity of estate planning instruments, but also the lawyer’s professional reputation and potential exposure to malpractice or disciplinary sanctions.

• ABA Model Rule 1.14 (Client with Diminished Capacity) directs attorneys to maintain a “normal” attorney-client relationship with impaired clients but permits protective measures when the lawyer reasonably believes the client is at risk of substantial harm. In the deathbed context, this rule creates a tension between an attorney’s desire to honor client instructions while guarding against undue influence.
• ABA Model Rule 1.7 (Conflict of Interest) prohibits representation where personal or financial interests materially limit the lawyer’s judgment. Drafting an instrument that benefits the lawyer or close associates creates an unwaivable conflict.
• ABA Model Rule 3.7 (Lawyer as Witness) warns attorneys against acting as both advocate and witness, a problem acute in deathbed will disputes where the drafting lawyer may be called to testify.

California adds sharper prohibitions. California Probate Code §21380 presumes invalid any donative transfer to the lawyer who drafted the instrument, or to that lawyer’s relatives or associates. California’s Rules of Professional Conduct 1.7 and 1.8.10 likewise restrict lawyers from soliciting or accepting gifts from clients. Hawaii’s ethics framework, while closely tracking the ABA Model Rules, also emphasizes the prohibition against self-dealing.

Hypothetical 1: The ICU Codicil

An attorney is summoned to an intensive care unit. The client, in declining health, instructs the lawyer to draft a codicil leaving her multimillion-dollar estate to a caregiver who has provided companionship in her final years. The caregiver is present at the bedside and insists upon rapid execution. In California, Probate Code §21380 automatically presumes this gift invalid as a product of undue influence. In Florida, the Carpenter factors would trigger a presumption of undue influence. In Washington, fiduciary presumptions under Lint would apply.

The attorney may be called as a witness to defend capacity and formalities, violating Model Rule 3.7. Drafting under obvious pressure may also violate Model Rule 1.14’s protective obligations.

The best practice in this situation is to decline representation or insist upon independent counsel. If proceeding, secure medical confirmation of capacity, independent witnesses, and document the process extensively.

Hypothetical 2: The Deathbed FLP or FLLC

A wealthy client, days from death, instructs counsel to form a family entity to hold marketable securities, seeking valuation discounts for estate tax purposes. Family members urge the lawyer to “make it happen tonight.”

Under IRC §2036 and IRC §2038, the IRS will almost certainly disregard the entity as a sham if formed at the deathbed without a legitimate business purpose. Courts like Strangi and Powell have made clear that such transactions are includable in the estate.  Here, the lawyer risks facilitating a transaction that is legally ineffective, exposing the estate to penalties and heirs to litigation. This may constitute a violation of Model Rule 1.1 (competence) and 2.1 (exercise of independent judgment). Best practice in this case is to advise against entity formation at this stage, document advice in writing, and consider declining representation if family pressure persists.

Hypothetical 3: The Attorney/Advisor as Beneficiary

A long-standing client, grateful for years of service, requests that the attorney draft a codicil naming the lawyer (or the lawyer’s spouse) as beneficiary of a significant bequest. In California, such a gift is presumptively invalid under California Probate Code §21380. In Hawaii, rules against self-dealing and conflicts of interest would render the gift ethically suspect. Courts across jurisdictions view such transfers as inherently coercive. Model Rule 1.8(c) flatly prohibits lawyers from preparing an instrument giving themselves or their relatives a substantial gift unless the client is related to the donee. Best practice is to decline representation, recommend independent counsel and refuse to draft the instrument under any circumstances.

Hypothetical 4: The Isolated Testator

A lawyer receives a frantic call from the adult child of an elderly client. The child reports that the client wishes to disinherit siblings and leave everything to the child but insists that the parent cannot meet outside the home due to illness. The lawyer arrives to find the client isolated, with the child present at all times. The situation mirrors the Carpenter undue influence factors (presence at execution, arranging counsel, knowledge of contents, securing witnesses). The resulting will would almost certainly be challenged and likely invalidated.  The lawyer risks aiding in elder exploitation. Model Rule 1.14 obliges protective measures where substantial harm is possible. Proceeding would raise significant professional liability risks. Best practice in this case is to refuse to proceed unless independent verification of intent and capacity can be obtained without the child’s involvement. Suggest appointment of a guardian ad litem or court supervisor.

Lessons for Practitioners

These scenarios illustrate the ethical minefield of deathbed practice. Lawyers and other advisors must resist pressure from family members and even from clients whose judgment may be impaired. The safe course is often to decline representation, or at minimum to slow down the process, obtain medical evidence of capacity, employ disinterested witnesses, and create an evidentiary record.

The central ethical principle is that lawyers are not mere scriveners. They must exercise independent judgment, safeguard vulnerable clients, and avoid becoming instruments of undue influence. As courts and legislatures from across the country have emphasized, protecting the elderly from exploitation is a core value that supersedes autonomy in questionable circumstances.

Policy Considerations: Autonomy, Fairness, and Abuse Prevention

The Federal Estate Tax: Balancing Revenue and Fairness

The federal estate tax has long reflected competing goals of revenue generation, fairness, and administrability. Deathbed planning implicates all three. The House Ways and Means Committee explained in early reports on the Revenue Act of 1916 that “[t]axation at death is the most practical means of securing a fair contribution from accumulated wealth.” The drafters feared that without mechanisms like IRC §2035, the tax base would be gutted by last-minute gifts.

Similarly, the Senate Finance Committee Report accompanying the Tax Reform Act of 1976 explained that the three-year rule was necessary to “foreclose avoidance opportunities that arise in contemplation of death.” Congress viewed eleventh-hour planning as inherently suspect since it is indistinguishable in purpose from a testamentary transfer. These policy concerns continue to animate IRS enforcement of IRC §2035 through IRC §2038.

The Basis Step-Up or Step-Down under Section 1014: Efficiency or Inequality?

The most politically charged feature of death taxation is IRC §1014’s step-up in basis. Critics argue that the rule entrenches wealth inequality by permanently shielding billions in capital gains from taxation. Vast amounts of unrealized gains in the estates of the wealthiest Americans vanish from the tax base each year due to IRC §1014.

Defenders, on the other hand, point to administrative efficiency. Requiring heirs to reconstruct historical basis for assets acquired decades earlier would be impractical and burdensome.

Reform debates resurface regularly. The 2021 Treasury Greenbook sought to eliminate the step-up for gains above $1 million per individual ($2.5 million per couple with exclusions). Though politically unsuccessful, the debate underscores ongoing tension between wealth equity and administrative simplicity.

While IRC §1014 remains powerful today, it is politically vulnerable.

Arguments in Favor of §1014

Proponents of §1014 emphasize three primary policy virtues - fairness, administrability, and the protection of heirs.

• Estate tax is imposed on the fair market value of a decedent’s assets. Without IRC §1014, heirs would face capital gains tax when disposing of the same property. By resetting basis to fair market value, IRC §1014 harmonizes the estate and income tax systems, ensuring that wealth already subject to estate tax is not taxed again upon disposition.
• Establishing a decedent’s original cost basis, particularly for assets held for decades or across generations, is often impractical if not impossible. Families may lack records, corporate actions may obscure historical adjustments, and inflation erodes clarity over time. Fair market value at death, by contrast, is already determined for estate tax purposes and readily audited. The step-up rule therefore reduces compliance costs, IRS enforcement burdens, and disputes between taxpayers and the government.
• Advocates argue that the rule is not solely a benefit for the wealthy. For many families, the largest assets are a home, a small business, or farmland. These assets often appreciate significantly over long holding periods. Without IRC §1014, heirs who must sell property to pay expenses, settle debts, or divide inheritances could face crushing capital gains liability. The step-up alleviates this hardship, enabling heirs to liquidate assets without an additional income tax burden.

Arguments Against §1014

Critics counter that §1014 functions less as a fairness measure than as a regressive loophole that entrenches inequality and negatively impacts economic behavior.

• By offering a full reset of basis at death, IRC §1014 incentivizes taxpayers to hold appreciated assets until death, even when market conditions suggest a sale or reinvestment would be efficient. This “lock-in effect” impedes capital mobility, discourages diversification, and undermines economic productivity.
• While middle-class families do benefit, the lion’s share of unrealized appreciation lies in the hands of wealthier individuals holding significant portfolios of securities, real estate, and closely held businesses. For these taxpayers, IRC §1014 effectively erases vast amounts of untaxed capital gains, allowing fortunes to pass across generations without ever being subject to income tax. The provision thus exacerbates wealth inequality and weakens the progressivity of the tax system.
• The Joint Committee on Taxation regularly identifies IRC §1014 as one of the largest “tax expenditures” in the Code, with revenue losses running into the hundreds of billions of dollars over a decade. Because capital gains are often the largest untaxed component of wealth accumulation, eliminating their recognition at death undermines the integrity of the income tax base.
• Property given during life carries over the donor’s basis under IRC §1015, while property transferred at death receives a new basis under IRC §1014. The economic effect of these transfers is similar, yet the tax treatment diverges sharply. This distinction encourages “deathbed” holding strategies, rewarding taxpayers for deferring transfers until death rather than making economically rational lifetime gifts.

Alternative Approaches

The flaws of IRC §1014 have prompted various reform proposals. Congress briefly experimented with a carryover basis regime in 1976, under which heirs would take the decedent’s adjusted basis, but abandoned the trial before full implementation due to administrative complexity and political resistance. More recently, some policymakers have suggested treating death as a realization event, akin to the Canadian “deemed disposition” model, in which unrealized gains are taxed at death subject to deferral provisions for family businesses and farms. Hybrid approaches include limiting step-up to a fixed exemption amount or continuing step-up for certain asset classes (such as primary residences) while requiring carryover basis for others.

As wealth inequality intensifies and fiscal pressures grow, the policy debate over IRC §1014 is unlikely to fade. Whether Congress preserves, reforms, or repeals the basis step-up, the provision will remain a focal point of the broader conversation about how the United States should tax capital, wealth, and intergenerational transfers in the decades to come.

Charitable Giving under §2055: Policy Considerations

Charitable giving in deathbed is not immune from debate. Proponents argue that the rule reflects Congress’s deliberate encouragement of charitable giving, regardless of motivation. Even last-minute philanthropy furthers public purposes and provides resources to the nonprofit sector. Critics, however, contend that deathbed charitable transfers may be driven less by altruism than by tax avoidance, allowing wealthy individuals to dictate large charitable legacies at the last moment while denying the Treasury significant revenue. The unlimited nature of the deduction amplifies this concern, as entire estates may escape taxation if directed to charity.

Nevertheless, the provision endures because it aligns with broader policy goals. The estate tax is intended not only to raise revenue but also to promote charitable giving as a socially desirable offset to private wealth accumulation. Deathbed planning, far from being an unintended loophole, is an inherent feature of the statutory design.

Autonomy vs. Paternalism

Underlying all of these doctrines is a persistent tension between autonomy and paternalism. American law prizes testamentary freedom. Individuals may dispose of property as they wish, even capriciously. Yet deathbed planning frequently occurs under circumstances of diminished capacity, emotional strain, and undue influence.

Protective doctrines, such as California Probate Code §21380’s presumption of undue influence, reflect a paternalistic impulse to guard the vulnerable. Critics argue that such provisions risk invalidating genuine expressions of gratitude or affection, thereby undermining autonomy. Supporters counter that without them, exploitation would flourish. The policy challenge lies in maintaining equilibrium between freedom of disposition and protection from coercion.

Overlap of Tax Policy with Elder Law

Deathbed planning also demonstrates the convergence of tax policy and elder law. Federal tax provisions like IRC §2035 through IRC §2038 exist primarily to protect the fisc, not to prevent elder abuse. State doctrines like undue influence exist to protect the vulnerable, not to preserve tax revenue. Yet both converge in restricting last-minute planning.

The practical effect is to channel estate planning into earlier stages of life, when capacity is clearer, and motives are less suspect. This reflects a policy judgment that planning should occur proactively, not reactively.

The Broader Policy Landscape

As the U.S. population ages, with Baby Boomers transferring trillions in wealth, deathbed planning pressures will only increase. Policymakers face competing priorities:

• Protecting the revenue base of the estate tax.
• Ensuring fairness in taxation across income levels.
• Guarding elderly individuals from exploitation.
• Respecting autonomy and freedom of disposition.

Reconciling these goals will require continued legislative refinement. Proposals to shorten the look-back period under IRC §2035, eliminate the basis step-up, or expand elder abuse presumptions illustrate the contested policy landscape. For now, practitioners must navigate a legal system designed more to deter abuse than to enable creativity at the deathbed.

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Best Practices for Practitioners in Deathbed Contexts

Capacity and Documentation

The first and most essential best practice is to thoroughly document capacity. Practitioners should obtain contemporaneous medical records, physician notes, affidavits attesting to the client’s competence. In California, practitioners sometimes request a physician’s presence at execution to testify later if needed. Video recording the execution ceremony, though controversial, may provide additional evidentiary support. The key is to create an evidentiary record that withstands future scrutiny in court. Without such documentation, even well-intentioned deathbed plans may collapse under challenges of incapacity.

Witnesses and Independence

Disinterested witnesses are critical. Lawyers should never allow beneficiaries to act as witnesses, nor should they permit caregivers or family members with financial stakes to participate in execution. Courts in Hawaii (Herbert and Holt) and Washington (Lint) have demonstrated how suspicious circumstances destroy credibility. Independent witnesses, ideally with no personal or financial ties to the family, strengthen the evidentiary record. Some firms maintain a roster of employees or colleagues who serve as neutral witnesses in sensitive cases.

Avoiding Complex Structures

Deathbed planning is ill-suited for complex structures like family limited partnerships, GRATs, or charitable lead trusts. As Strangi and Powell show, the IRS is poised to challenge such transactions under IRC §2036 and IRC §2038. Practitioners should instead favor simple, transparent instruments, such as wills, codicils, outright charitable bequests, which align with statutory safe harbors. Simplicity not only reduces audit risk but also reassures courts that the plan reflects genuine intent rather than aggressive tax avoidance.

Risk Disclosure and Client Counseling

Attorneys must provide candid risk disclosures. This includes explaining the high likelihood of litigation, potential invalidation under state undue influence statutes, and possible IRS challenges. Written memoranda, signed by the client and retained in the file, can demonstrate that the lawyer discharged the duty of informed consent. Such documentation also helps defend against malpractice claims by disappointed heirs.

Declining Representation When Appropriate

The hardest best practice is sometimes to say no. Lawyers must resist family pressure to “just draft something” when the circumstances suggest undue influence or incapacity. Declining representation protects the lawyer ethically and may spare the client’s estate from expensive, divisive litigation. Courts have repeatedly chastised attorneys who facilitated dubious deathbed transactions. Professional responsibility requires judgment, not blind execution of client or family wishes.

Final Thoughts

End-of-life planning requires a synthesis of technical knowledge and practical judgment. The titling of assets, the precision of beneficiary designations, the timing and form of lifetime gifts, and the provision of liquidity for estate taxes all converge in a compressed timeframe. Each decision carries not only tax consequences but also risks of contest, administrative burden, and family discord. By approaching these issues holistically, by integrating federal tax rules with state property and family laws and the realities of client circumstances, estate planners can transform the uncertainty of the deathbed into an orderly transfer of wealth and a lasting legacy.