Estate Tax in 2010

I know I have covered much of this in past posts on the AW Blog, but CBS Money Watch had an excellent article, nicely laid out and simple to follow on the major issues involved for estate tax in 2010.  Again, one of the important factors to keep in mind is the now the cost basis of property instead of the stepped up basis for value at time of the death. Expectations remain that a new law will be passed and be retroactive, although there are constitutional issues and there could be some suits filed by wealthy estates.  Of course the sooner new law estate tax laws may be passed, the fewer suits are expected.

All appraisers should be closely monitoring these developments.

CBS Money Watch states

* Both the estate tax and the generation-skipping transfer tax (on assets given to grandchildren) were repealed at the end of 2009.
* Both taxes are scheduled to return in 2011 at the unfavorable rates that applied 10 years earlier. The amount that is exempt from each of these taxes will then be $1 million, and the tax on the rest will be 55 percent.
* There is still a gift tax if you give away more than $1 million during your lifetime, but the tax rate has been reduced from 45 percent to 35 percent.
* Heirs will now have to use the original price paid for an asset when computing their tax liability, instead of the value upon the owner’s death. This change of “cost basis” could be very expensive, and difficult, for heirs. For example, if you inherit shares of Microsoft (MSFT) that your father accumulated over many years, you might be stuck hunting for all his transaction slips and adjusting for stock splits along the way (a potential nightmare). And when you sell any of the shares, you may owe capital gains tax on the appreciation. Each estate can exempt $1.3 million of gains from this carryover basis rule, as it’s called. Another $3 million exemption applies to assets inherited from a spouse.

Most estate planners expect Congress to restore the taxes retroactively, and to put back in place the system that applied in 2009: a $3.5 million exemption for estate tax and generation-skipping transfer tax, with a 45 percent rate for these two taxes as well as the gift tax.

To read the full CBS Money Watch article, click HERE.