A few weeks ago, I wrote about the expected death of the “death tax” due in 2010.

The $1.35 trillion tax cut package passed in 2001 included provisions for the estate tax rate decrease and the estate value exemption increase over time with the estate tax disappearing entirely in 2010. However, it would return in 2011 to a 55% tax rate and an exemption only on the first $1 million of an estate.

The question still remains, though, as to what Congress plans to do about it.

Congress could allow the law to stand meaning anyone who dies in 2010 doesn’t have to pay taxes on their estate. But, this doesn’t seem likely because of the tremendous impact it would have on the Treasury’s coffers.

Congress could pass legislation in the next two months to prevent the repeal from taking place, either extending current tax rates and exemptions, or putting forth a new plan. President Obama proposes a permanent estate tax of 45% exempting the first $3.5 million of an estate ($7 million for married couples).

Or, they could let 2010 come and pass a law that will be applied retroactively. Estate taxes aren’t due until nine months after the date of death making September 2010 the latest Congress has to make a decision. However, that could mean that the government may show up at your door, hat in hand looking to collect on the dearly departed’s estate long after you’ve filed the final tax returns.

There is a great deal of criticism against this tactic – most noting the difficulty of such retroactive tax collection on a deceased individual’s divvied up estate. It may even be unconstitutional.

Whatever Congress decides, it’s a decision best made sooner than later.

James D. Perry

Former NFL quarterback Steve McNair was shot and killed in what police have deemed a murder-suicide on July 4, 2009, apparently at the hand of his mistress.

He left a wife, Mechelle, and four young children (two from a previous relationship), and no will or estate plan.

McNair’s estate is sizeable. He earned more than $90 million in his playing career, not including marketing and endorsement deals. At last inventory, his widow listed his estate assets at around $19.6 million.

Mechelle McNair hired a probate attorney and was granted the legal authority to administer his estate. However, in the probate petition, she listed only herself and her natural children as heirs saying she didn’t have proof that the other two were McNair’s natural children.

McNair was ordered by Mississippi courts to provide child support for the two children, which seems to indicate that Mechelle really had no reason to doubt their parentage. And while it doesn’t appear that Mechelle plans to challenge their claims to the estate, the two children – both of whom have attorneys representing their interests – have not yet filed as beneficiaries.

And most recently, another Mississippi woman has come forward claiming that McNair fathered her 17 year-old daughter.

And these are just the claims from McNair’s heirs and potential heirs. This says nothing of his outstanding debts, one of which may be unpaid rent for an apartment that may have housed a second mistress.

This sad story of his death is further agitated by the fact that this family’s grief and indiscretions must be played out in public.

Even if you are not a celebrity, or weren’t murdered by your mistress, there is no privacy when your assets go through the probate court – not from the media nor from the nosy neighbors next door. Everything is out there for the world to see, your debts, an itemization of each of your assets, and the names and addresses of your heirs.

A good estate plan can avoid this. Just do it.

James D. Perry

Richard Pryor’s widow, Jennifer Lee, and one of his daughters, Elizabeth, have been warring in the courts over his estate since 2005.

Pryor was a well-known comedian and actor. He was married seven times to five different women. He and Jennifer married for the first time in 1981 and divorced in 1982. They married again in secret in 2001.

In the mid-1980s, he was diagnosed with multiple sclerosis. Towards the end of his life, Jennifer became his primary caretaker. Pryor died in 2005.

His daughter Elizabeth did not learn of Pryor’s remarriage until sometime after her father’s death. Elizabeth first tried to petition for annulment of Pryor’s marriage, alleging fraud and undue influence.

If she had been successful in getting the court to void the marriage, she may have succeeded in barring Jennifer’s claim to Pryor’s estate under the California law that prohibits caretakers from becoming beneficiaries.

The law exists to prevent caretakers from exercising undue influence over their elderly and infirm clients to gain access to their fortunes.

This case breaks new ground because of the issue of the fact Pryor was married, but that the marriage was not public, thereby making it impossible for anyone to know of or challenge the marriage as a product of undue influence or incapacity on the part of Pryor.

The court has now said that it’s too late to challenge a marriage after death. This looks like a road map to ripping off the elderly or infirm – just marry them in secret and keep it quiet until after they are dead.

James D. Perry

Right now, 2010 is a year to die for.

Those who die in 2010 won’t be taxed on their estates, although their heirs will have to pay capital gains taxes on inherited assets when they sell them.

Unless President Obama and Congress work quickly to stop it, the estate tax – sometimes referred to as “the death tax” – will be dead for one year come January 1, 2010. However, it will return with a vengeance in 2011 to the pre-Bush levels of 55% on the first $1 million of an estate.

Since 2001, the tax rate has decreased steadily and the estate value exempted has increased. As per legislation passed that year as part of President George W. Bush’s $1.35 trillion tax cuts, the estate tax is set to disappear entirely in 2010 for just one year.

President Obama proposes a permanent estate tax of 45% exempting the first $3.5 million of an estate ($7 million for married couples). Congressional Republicans want to see the repeal go into effect as planned, though political analysts don’t see that happening. There is a push for Congress to vote to exten the 2009 rules through 2010, essentially punting the issue of a permanent fix until next year.

However, the compromise promoted by Senators John Kyl (R-Ariz.) and Blanche Lincoln (D- Ark.) is gaining a lot of support from lobbyists for small business, agriculture, manufacturing, and other industries. Under that plan, the permanent estate tax rate would be 35% exempting the first $5 million.

Congressional focus is still on health care, but this is certainly one issue to watch as the year winds down.

James D. Perry