Upstate Estate Law, P.C. Blog

In a prior post, I discussed the idea of stepped up tax basis, wherein upon death the tax basis of a person’s assets is set equal to the fair market value of the assets as of the date of death. Thus, if the asset is then sold after death for that same fair market value, there is no taxable gain. 

Alas, with the laws expected to go into effect in 2010, this will no longer be true.  In 2010, the estate tax is slated to be repealed.  Along with the estate tax, the law allowing for stepped up tax basis upon death is being partially repealed.  In 2009, all estate assets receive a stepped up basis.  However, in 2010 there will be a limited step up in basis only to the extent of $1.3 million in estate assets.  For transfers to spouses, there is an additional $3 million that will receive stepped up basis.  But what does this mean in reality?Click here to finish this post.

The next anti-estate tax argument that you may hear is that the estate tax taxes assets that have been taxed already. While this may be true in some instances, it is false when appreciated assets are considered.

To understand this requires attention to the interplay between income taxes and estate taxes.  For the rest of this discussion an equation must be remembered.  The equation is unrealized gain = current fair market value – tax basis.  Onward and upward to an example.

Assume “A” purchased a home in 1965 for a total purchase price of 100k. “A” passes away in 2009 and that house is now worth 4 million.  In this example “A’s” tax basis is the cost of acquiring the assets, or 100k, and “A” had an unrealized taxable gain of 3.9 million dollars that has never been subject to income tax. Under 2009 estate tax law, there will Click here to finish this post.

The U.S. Senate has failed to make any move on estate tax legislation reinstating the federal estate tax for the year 2010. It is not expected to do so before the end of this year.

The sticking point seems to be that Republicans want a 5M dollar exemption and a thirty five percent highest tax bracket, while Democrats want to keep the current 3.5M dollar exemption and forty five percent rate.

It is reported by the Wall Street Journal that the Senate will revisit this issue early next year and enact retroactive legislation reinstating the estate tax as of January 1, 2010. As to what the parameters of that estate tax will be, you will just have to stay tuned.

This will be an easy one.  The argument is rather simple and attempts to pull at your heart strings.  “It is immoral to tax people when they die.”  

Why is it any more immoral to tax people on assets they own when they die than it is to tax people on their weekly pay checks?  Are not taxes the price we pay to live (or die) in a civilized society?  Particularly now in our almost bankrupt civilized society?  Does this argument also mean that there should be no income tax return filing for the year of death?

Can one tax really be Click here to finish this post.

“Why can’t I just take a copy of the Revocable Trust to the bank and have them give me the money in the account”, asks your client.  “The trust says that I am the beneficiary.”

My answer to this is always Click here to finish this post.