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Fiscal conservatives working at churches face a dilemma: the estate tax violates their free-market principles, but its reinstatement may be a boon to their employers.

The law, as it stands, is creating confusion. Congress is encouraging people to die in 2010, when there will be no estate tax, said Kent Kramer, a financial planner for wealthy Christian clients.

"Consider the family with a wealthy parent who has a terminal illness," he said. Under current law, "If he dies in 2010, all the wealth passes to heirs. If he dies on January 1, 2011 … [his] estate above $1 million would be taxed heavily."

As the increasingly indebted federal government looks for new ways to bring in revenue, the so-called death tax will be one of the first considered. This may be good news for churches and nonprofits that receive estate gifts.

"The estate tax encourages wise financial planning," said David Wills, president of the National Christian Foundation. "[It] forces people to think how their assets will be transferred."

The estate tax began a phaseout in 2001, when President George W. Bush and the Republican Congress passed the first of two large tax cuts. Under current law, estates are exempt from taxation for the first $3.5 million with the balance taxed at 45 percent. President Obama proposed maintaining these rates in his budget. The tax will disappear in 2010 but is scheduled to return in 2011 to its previous level, exempting the first $1 million of an estate and taxing the balance at 55 percent.

Kramer said wealthy individuals will have an incentive to give to charitable causes beyond the level of the exemption. "Many people would rather direct who will benefit from their estate as opposed to giving so much to the government," he said. ...

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April 2009

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