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

The New York Times ran a story this week on bill collectors who call relatives of the dear departed asking  if they want to settle the balance on a credit card or bank loan, or perhaps make that final cable tv bill or cellphone payment for the deceased person.

The next of kin on the other end of the line often have no legal obligation to assume the debt of a spouse, sibling or parent. But they often pay for it anyway.

Dead people are the newest frontier in debt collecting, and one of the healthiest parts of the industry. Improved database technology is making it easier to discover when estates are opened in the country’s 3,000 probate courts, giving collectors an opportunity to file timely claims.

The law varies from state to state. In California, survivors are generally not required to pay a dead relative’s bills from their own assets. In theory, however, collection agencies could go after any property inherited from the deceased.

Sentiment also plays a large role, the agencies say. Some relatives are loyal to the credit card or bank in question. Some feel a strong sense of morality, that all debts should be paid. Most of all, people feel they are honoring the wishes of their loved ones.

It is likely that most of those who pay a dead relative’s debts are unaware they may have no legal obligation.

I think collections from the next of kin of deceased persons should be better regulated. I doubt survivors are told up front that they are under no legal obligation to pay the debt.

My recommendation:  Unsecured creditors who want to seek payment for deceased persons’ debts should be required at beginning of call, to state that the survivor has no personal obligation to pay debt.  They should also be required to state the only legal recourse the creditor has is against the debtor’s estate.  

In my Orange County Probate practice I have seen many instances of family members paying bills for a deceased person from their own funds.  Think twice before you do this.  If there is a probate estate pending, notice is given to all creditors - they have 120 days to file a claim after the notice. If a creditor fails to file the claim with the court, the claim is barred.  

If your in doubt about a collection claim against a deceased relative, call a probate attorney.   

James D. Perry

 Yesterday in an article for The Wall Street Journal, Jonathan Weisman reported that once President-elect Obama takes office next week, Democrats in Congress will act quickly to end the repeal of the federal estate tax that’s scheduled to take place on January 1, 2010.

In his article, Weisman summarizes the interesting history of the forces behind President Bush’s 2001 legislation that led to the gradual increase of the estate tax exemption from $1,000,000 to the current $3,500,000 exemption. The article also reports that if the current exemption is locked in for the next 10 years, then only about 2% of estates will be subject to the estate tax and the U.S. Treasury will lose around $324 billion more than if the estate tax exemption is allowed to revert back to the pre-2001 amount of $1,000,000 - what it’s currently scheduled to do in 2011.

What does this mean for you and your family?  If you are like most of my clients, you will be more than covered by the $3,500,000 exemption –at least until the economy improves, houses start appreciating in value at double digit rates, and the stock market shoots up about 60%.

When all of those good things happen you can start to worry about estate taxes if you want.  As for me, I take the  Bobbie Mcferrin approach,  ”don’t worry, be happy” –  it’s estate tax repeal that is dead, not you.

Did you know that even deceased persons can be victims of identity theft? The deceased are easy targets because sometimes it takes weeks or months and in some cases years for financial institutions to find out about a death. The identity of a deceased person can be stolen in a variety of ways. Some identity thieves watch the obituaries, look up death certificates, or obtain private information from health care providers, unknowing relatives, or internet genealogy web sites.

Unfortunately, the thief may also be a family member who may take advantage of the situation or who has already been using that identity. This may be especially true if the deceased suffered from lengthy illness, mental confusion, or if there is disagreement among family members prior to the death.

Financial institutions are not immediately made aware that their customer is deceased. It takes time for the Social Security Administration to transmit the Death Master File to the financial industry. Until the institution receives word that the individual is deceased, the account remains active.

Although the deceased person doesn’t have to be concerned with his or her credit rating, identity theft can cause emotional distress for the family. Identity Theft Resource Center has valuable information about how to protect yourself and your deceased loved one from identity theft. They also have an information sheet with steps to take to decrease the risk of identity theft such as notifying the credit bureaus to put a “deceased” notation in their file, obtaining a copy of the decedent’s credit report, and a list of agencies and companies to notify of the death.

You can also stop the junk mail by contacting the Direct Marketing Association . There you can register to take the deceased’s name off mailing lists with their Deceased Do Not Contact List.

If your loved one had a will which needs to be probated or a trust which needs to be administered after death, contact my office. We can help with trust administration or probate.