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There May Be A Tax Upside To Dying In 2010

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There May Be A Tax Upside To Dying In 2010

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There May Be A Tax Upside To Dying In 2010

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Tax day has come and gone, but some taxpayers are still grappling with a few nagging questions, questions about life and death. For wealthy people who are getting up there in age, 2010 presents an unusual opportunity. Thats because for this one year, there is no federal estate tax.

And as NPR's Yuki Noguchi reports, that simple fact is creating some pretty uncomfortable situations.

YUKI NOGUCHI: Earlier this year, one of Sanford Schlesinger's clients, a wealthy Southerner, died - left behind a $70 million estate and a will naming six heirs and several charities. But they all remain in legal limbo. They haven't collected their money, because even though the law says there are no estate taxes this year, trust and estates attorneys like Schlesinger say they cannot be sure Congress won't try to collect them retroactively.

Mr. SANFORD SCHLESINGER (Trust and Estates Attorney): It's possible that people will get anything from millions of dollars to zero. So I have to tell people, we don't know what you're going to get. Don't assume that you're a millionaire.

NOGUCHI: How do they react to that?

Mr. SCHLESINGER: I think youve already guessed. One person said to me, well, can I still have my check? Ill give it back. I said no.

NOGUCHI: Such is life after death in 2010, at least for those with lots of money. The complication stems from this: Back in 2001, a Republican-controlled Congress voted to phase out federal estate taxes over 10 years. This happens to be the first and only year they don't exist.

After this year, if Congress does not act, they go back to their pre-2001 levels of 55 percent on any estate worth a million dollars or more. And that's not the only way this year is quirky.

This year only, heirs won't have to pay taxes on their grandparents' assets, something known as a generation-skipping transfer tax. Gift taxes are also lower, but people who sell their inherited assets will have to pay higher taxes. Also, some states have their own estate taxes.

If this all sounds really confusing, it is, even for legal sticklers like Schlesinger. So is this a good year to die?

Mr. SCHLESINGER: I don't know because it would be a shame if I decide to die and Congress reinstates the estate tax, and I died for no reason.

NOGUCHI: But as the year drags on, Congress may have fewer options. If it tries to collect taxes retroactively, families might sue. As it stands now, Congress hasn't resolved the issue. The House passed a bill that would reintroduce estate taxes next year but only for the wealthiest Americans, anyone with more than $3.5 million. And the Senate has yet to act.

Ms. RAY MADOFF (Professor, Boston College Law School): Congress doesn't really know which way to go.

NOGUCHI: That's Ray Madoff, no relation to Ponzi-schemer Bernie Madoff. She is a professor at Boston College Law School, and she says things are stalled because it's a no-win situation for Congress. On one hand, insurance companies, universities and charities benefit from an estate tax. On the other hand...

Ms. MADOFF: There's been very effective marketing against the estate tax.

NOGUCHI: When opponents call it a death tax, Madoff says, it makes it sounds like a tax that's imposed on everybody. Actually, last year only 6,000 people paid the tax. And in fact, the absence of federal estate taxes this year isn't such a big deal that it would affect the U.S. economy. This year, estate taxes are expected to count for less than one percent of the IRS' overall tax revenue.

But estate taxes provide a huge incentive for people to give to charities, and at least anecdotally, estate planners say charitable giving plans have dropped off this year. Madoff says the uncertainty makes for some pretty uncomfortable situations. At a funeral she recently attended, she was approached by the son-in-law of the deceased.

Ms. MADOFF: He just sidled up to me and asked what I thought they were going to be happening to the estate tax and whether or not they were going to pay estate taxes.

NOGUCHI: And what did you tell him?

Ms. MADOFF: Boy, I was really stumped.

NOGUCHI: Schlesinger, the attorney, says the question marks are affecting dozens of clients who are trying to plan their estates. He says the fact that estate taxes will go up January 1st if Congress doesn't act is leading to some pretty bizarre language: clauses that say if I die this year, treat my will as if it were last year. And there are contingencies in cases of living wills that say, in effect:

Mr. SCHLESINGER: Pull the plug if there's no tax. But keep me plugged in if there is one.

NOGUCHI: In the meantime, he has this advice: If you're rich, watch your back.

Mr. SCHLESINGER: If we come down to November and there's no estate tax, if I were grandma, I would not show up for Thanksgiving dinner without a food taster.

NOGUCHI: Yuki Noguchi, NPR News.

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