Estate Planning

Estate Tax 'Choice" in 2010?

By Greg Herman-Giddens

Support is growing in Congress for allowing estates of decedents dying in 2010 to choose between the $3.5 million estate tax exemption (per 2009 law) and the current modified carryover basis law.  Ever a good source of  tax news, thehill.com has a brief article on this topic.

For a description of the modified carryover basis law, click "Continue Reading."

Modified Carryover Basis

A modified carryover basis rule will immediately come into effect. Under current law, the basis of assets received from a decedent is stepped up to the fair market value as of the date of death. Next year, 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

Under the new rules, 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.

As a practical matter, the estate tax is being replaced with an increased capital gains tax for beneficiaries of estates over $1,300,000.

Full post as published by North Carolina Estate Planning Blog on April 06, 2010 (boomark / email).