Estate Planning

Estate Tax "Rumors on the Street"

By Greg Herman-Giddens

Yesterday I listened in on a conference call about planning to avoid the 3.8% Medicare Surtax that will come into effect in 2013.  The speaker, CPA Robert Keebler, a nationally known tax expert, stated that it is likely that Congress will offer estates of those who die in 2010 the choice between the estate tax system, with a step-up in basis for appreciated property, and the modified carryover basis system currently in effect.  The latter system will be most advantageous for virtually all estates except those under $1 million.  Click "Continue Reading" for a brief explanation of the modified carryover basis rule.

Keebler and Jonathan Mintz, an Executive Director of WealthCounsel, LLC both agree that Congress will not provide for an increase of the estate tax exemption over the $1 million that is scheduled for next year.

Modified Carryover Basis

Under the modified carryover basis rule, the basis of assets received from a decedent will carry over from the decedent. Two exceptions will exempt most estates:

$1.3 million of basis can be added to certain assets and, in addition;

$3.0 million of basis can be added to assets transferred to a surviving spouse.

However, not all property is eligible for an increase in basis. Property acquired by a decedent by gift from a non-spouse within three years of death is excluded (to prevent 'gifts' of low basis assets in exchange for stepped-up bequests). Income in respect of a decedent property (such as IRAs) is also excluded, along with stock held in a personal holding company or foreign investment company.

Impact of Modified Carryover Basis

Real estate or other assets that remain in a family for generations will require accurate basis records to be kept for generations as well. Without accurate basis records maintained over decades, the IRS will prevail in any dispute over the basis, thus keeping basis low and taxing the assets 'artificially' high.

Full post as published by North Carolina Estate Planning Blog on July 15, 2010 (boomark / email).