Seniors & Aging

The “Death Tax” And Other Myths | Real Life

My OLLI students recently were pleased to learn something. You might be, too: Dying is a tax-free event! No one has to pay a tax because you died.

Feel better?

Now, you’re exclaiming: “But, Gary, what about all the politicians’ campaign rhetoric, promising to abolish the ‘death tax’ that we all allegedly should cringe in horror about?” Since 1916, when first enacted, they’ve been fussing about the Federal Estate Tax (now properly labeled “Unified Federal Estate and Gift Tax”), which of course isn’t at all a tax on dying.

No, it’s a tax on passing some kinds of assets on by bequest to some of our beneficiaries, and by gift during life. But, almost no one among us, or our estates, ever will be affected by it at all.

Why not? First of all, transfers of assets between spouses is tax-free, without limit, both during life and at death. (All right, wise guys, I’m not responsible for inferring any other correlation between marriage and death). Many kinds of assets and ownership arrangements are exempt; life insurance purchased and owned by an irrevocable trust is a favorite. Each year the first $ 14,000.00 of gifted assets, $ 28,000.00 if jointly with one’s spouse, is exempt and isn’t even counted toward the lifetime exemption.

And, get this: Several times through the years, our congressmen and senators, seeking re-election, have enacted sharp increases in the lifetime exemption for all the assets that aren’t otherwise exempt. Now the exemption is $ 5,450,000.00, $ 10,900,000.00 jointly for spouses.

So, if your exposed net assets’ values exceed that, the bad news is that there’s a potential tax exposure. Of course, the good news is that you’re worth that much.

Besides all the above escapes, your clever estate-planning tax attorney likely will invoke some of the plentiful legal strategies to erase the exposure altogether. Among those are ways to give the assets away, yet indirectly keep some aspects of control over them. But, hark! -- If you’re gifting, just be sure to live three years after the gift is made, to satisfy the “contemplation of death” rule, OK?

Just for fun, curious to know the amount of federal tax that your estate won’t have to pay, unless it’s very rich and under-planned? The scale is progressive, meaning that the richer you were, the higher the proportionate hit. For example, if the net taxable estate, after all the exemptions and exclusions, is only $ 10,000.00, the tax is merely $ 1,800.00, but if it’s $ 1,000,000.00 or more, the tax is

$ 345,000.00 plus 40% of the excess above the million. Wow! Aren’t we glad we’re poor?

Most states, including both Carolinas, have abolished their own estate taxes, too, indeed if they ever had imposed them. I don’t know of any that ever imposed a gift tax.

Some states still impose inheritance taxes on the beneficiaries who receive bequests, somewhat modest in impact and also swiss-cheesed with exemptions and avoidance strategies and trending toward extinction. Neither of the Carolinas does.

So, now you know more about the fake “death tax” issue (as well as many other issues, right?) than the blustering politicians know. So, when they rage about it, go right ahead and launch the in-your-face challenge: “WHAT death tax?”

Speaking of being poor, here’s Myth No. 2: “Medicaid is only for the poor”:

Congress, no doubt inspired by the powerful health care industry lobby, created Medicaid to help those who lack the means to pay for minimally adequate health care, in the same sense that Social Security is a “floor of protection” against having inadequate income to live on.

The program makes federal grants to the states to fund their programs, a broad range of basic services that meet the federal minimum requirements. Because of it, millions of Americans, who otherwise would be deprived, receive free vital care delivered mainly via institutional health care facilities, and the providers receive at least partial funding to cover their costs. And, spurred by our society’s burgeoning need, it’s expanding, aided by the Affordable Care Act and other legislation, both federal and state.

Who’s eligible? Folks whose incomes and asset resources, for whatever eligible reasons, especially disability, are below or near “Federal Poverty Level” guidelines. For an inescapable, stark reason, that diminished status very possibly is where financially comfortable, even affluent, you and I are headed -- as the burgeoning costs of living longer and sicker in the 21st century drain away our fortunes and our Medicare. And that cost is further compounded by our society’s no-longer-home-based scattered-family life style.

Mom lived her last four years in a community-based non-profit nursing home in the middle of affluent Montgomery County, Maryland. More than sixty percent of the home’s 400-plus residents had become Medicaid-dependent. Most of those had been far from that when they arrived. That’s typical, today.

OK, let’s lighten up, and balance that profundity with a myth that’s not so menacing: “If we miss the April 15 income tax filing deadline, the sky will fall on us”.

First of all, this year’s Federal tax deadline is April 18. Wow, what a gift! But, why? Of course, the 15th is a Saturday, the 16th a Sunday, and weekends are sacred and inviolable, right? But, why not Monday, the 17th? Because it’s Emancipation Day, also an official holiday in the District of Columbia, an uplifting annual event featuring commemorative activities ever since President Lincoln signed the Emancipation Proclamation in 1862.

But, in any year, it’s perfectly safe and cool to postpone filing for any reason, even procrastination, for months without any repercussions. Of course, compelling reasons do abound, such as illness, natural disaster, and the often late arrival of needed tax statements such as K-1’s and 1099’s. In fact, I suspect that the under-funded, under-staffed, over-loaded tax processing agencies welcome the spreading out of their seasonal workload surges.

Just file for an extension (IRS Form 4868, states’ similar forms, too) before the regular April deadline. No, I’m not being un-American, depriving the nation of tax revenue by revealing this “secret”, because the 4868 must be accompanied by payment of a realistic, safe estimate of the remaining tax that the deferred final return eventually will ascertain.

Of course, if you’ve overpaid or over-withheld already, your refunds will be delayed until you do file final returns and the tax agencies get around to processing them. You’ve loaned your precious money to the governments interest-free. If you’re OK with that, surely plenty of your fellow readers will be happy to offer you similar opportunities.

More myths next time -- Like to suggest some?

Contact Gary Newman at Your ideas and comments are always welcome.