Death and taxes: Memento mori

Back in undergrad, I was one of the founding members of Michigan State University’s Knights of Columbus chapter. While the ceremonials for being inducted into the first three degrees of the Knights were a closely guarded secret at the time of my initiation, they were declassified during the COVID-19 pandemic, and I am now able to acknowledge that the motto of the Knights, a motto explained to us in our first degree induction ceremony, is tempus fugit; memento mori — “time flies; remember death.” The point of that motto is to urge every Knight to be vigilant about the fact that none of the time we are given is our own, and so we should be prepared for our Heavenly Father to call us back to himself at any time, embracing each moment in between as the blessing it is.

One of the things we have been discussing these past couple of weeks in my Federal Income Tax class has left me with a significant quantity of food for thought. The first big question that Prof. Michael Kirsch has walked us through in Fed Tax is really a question of definition: “What is income?” The intricacies of answering that question are outside the scope of this column, but suffice it to say there are complex rules whose purpose is to try to treat similar accessions to wealth similarly. For instance, all the convolutions about the “basis” people have in a particular property are meant to ensure that people only get taxed on the amount of money above and beyond what they put into it. So if I buy a $100,000 house, but then sell it for $150,000, the extra $50,000 I got from the sale probably counts as gross income, but not the $100,000 I had already put into the property (the “basis”).

So when we got to how annuities are treated by the tax code, it was no surprise that there was a similar rule. For tax purposes, all annuity payments get split into two parts: the part that pays me back what I put in, and the part that puts extra money on top. For fixed-term annuities, this is easy enough to understand. Say I pay $4,000 for an annuity that will pay me back $1,000 a year for five years. So each year on this annuity I’d get $800 back tax-free, but would need to pay taxes on the extra $200. But what about annuities whose term is not fixed, like an annuity that pays you a certain amount of money per year as long as you live? My gut instinct was perhaps the payments would only count as gross income once all of the initial investment had been paid back, but once again the tax code has a special rule to cover this situation: a life expectancy table. So say I spent $39,000 on an annuity that pays out $1,000 a year for the rest of my life. $750 of that each year would be tax-free, while the remaining $250 would count as income. Why? Because I’m 23 years old, and the IRS estimates that I have another 52 years to live. Should I live longer than the 75 years the IRS projects I’ll live, then I’d have to pay taxes on the full annuity payment, and if my life were to be cut short, my estate would get a tax deduction for the part of the $39,000 that hadn’t yet been paid back to me.

The fascinating thing about this life expectancy table is that there never comes a point in time at which the government’s life expectancy for someone is zero. Sure, the federal government thinks I’m going to live to 75 now, but those who are already 75 have another 11 years to live on average. It is, perhaps, the most curious acknowledgement that while the feds can make their best guess, we do not know the day or the hour at which our Heavenly Father will call us back to Himself. And yet, that acknowledgement comes with a gut check for the rest of us, going about our lives having settled into the day-to-day — the clock is ticking. The feds’ life expectancy number will almost always be wrong for any one of us, but it points to the reality that each of our time in this life is finite.

I had the blessing last week of distributing ashes on Ash Wednesday for the very first time. As the sacristan of the Law School Chapel, Fr. Bill Dailey asked me to assist him with the imposition of ashes at the special 9:30 a.m. Mass we held for the occasion. While I did my best to put a true cross on the foreheads of my fellow students, professors and other guests of the Chapel (sorry to those of you who received “blobs” from me), the whole experience gave me an opportunity to meditate on the phrase, “remember you are dust and unto dust you shall return.” There’s a sort of symmetry, I think, between the two purple liturgical seasons: Advent, with the readings for Christ the King and the First Sunday of Advent, and Lent, with the Ash Wednesday observance, both emphasize the last things: death, judgment, heaven and hell. But both Advent and Lent move from that inward focus to an outward observance of Christ’s Paschal Mystery, from his birth at Christmas to his Passion, death and Resurrection during Holy Week. 

So between the beginning of this year’s Lenten observance and this last week of Federal Income Tax, I have been duly reminded that time flies and admonished to remember death, just as I was when I first became a Knight of Columbus almost four years ago. But remembering death is not the end of the story; to quote Brooks & Dunn, “this can’t be all there is!” So for the rest of this Lent, may we each keep in mind that our possibly-secret personal penances, whatever they may be, and the inward focus with which our Lent starts is meant, just like in Advent, to point back to Christ and His Paschal Mystery by the time Holy Week comes knocking at our door!

Devin Humphreys is a 3L at Notre Dame Law School. When he isn't serving as the sacristan at the Law School Chapel, singing with the Liturgical Choir or Chorale or competing at a quiz bowl tournament, he's sharing his thoughts on the legal developments of the day with anyone who will listen. For advice on law school, hot takes on Mass music and free scholarly publication ideas, reach out to Devin at dhumphr2@nd.edu or @DevinJHumphreys on Twitter.