7 Steps for 2010 Heirs

There was a recent discussion post on a LinkedIn forum about an article from Forbes on the current 2010 estate tax situation, and seven steps heirs of 2010 should consider. The article did mention there is still the possibility of the law changing, and also that it could become retroactive.  I have posted on the AW Blog on these topics in the past and have tried to monitor legislation with regards to estate tax. 

Many experts felt the further into 2010 we advanced the less likely we are to see retro-active legislation.  This Forbes articles states there is ample precedent to make any new law retro-active.  Would some 2010 heirs sue, certainly, but most would probably comply.  The article author thinks there is only a remote chance of a new estate tax law being passed this year and if so it will probably settle at something close to the 2009 level of  a $3.5 million exemption and tax rate of 45%.

Only time will tell and congress, particularly the Senate has had opportunities to pass several different legislation dealing with the estate tax and has failed to do so. Time will tell, but it is growing short.

Of the seven steps for heirs to follow, the first is to have assets appraisers, followed by locate purchase records, to delay selling appreciated assets, postpone distributions, extend paperwork deadlines, apply the basis amount fairly, and to guard against executor's risk.  Overall the article has some very good points and enough depth to make the content useful for personal property appraisers.

Deborah Jacobs of Forbes reports:

To further complicate matters, there's a possibility--though as the year wears on it seems increasingly remote--that Congress will restore the tax retroactively with the same $3.5 million exemption and 45% top rate that existed in 2009. Past court cases suggest that is perfectly legal. But some people with a lot at stake have argued that a retroactive tax is unconstitutional and threatened lawsuits. With the prospect of litigation looming, any legislation that takes effect in 2010 would almost certainly need to offer a choice for heirs of people who die this year: Pay estate tax, or use the modified carryover basis system that's in effect while there is no estate tax.

Whether heirs are stuck with carryover basis, or wind up with a choice for 2010 and elect to use the carryover basis/no estate tax option, inheritors and their advisers need to take the following steps.

1. Have assets appraised.

As in past years, unless the date of death value of a costly asset is obvious (as it is, for example, for marketable securities), you will need to get an appraisal.

If estate tax is an issue, you use this information to figure the total value of the estate, and then apply exemptions and deductions. For instance, you subtract charitable bequests from the total. There is also an unlimited marital deduction for assets passing to a citizen spouse, either outright or through certain kinds of trusts.

Under a modified carryover basis system, you use date of death values for a different purpose. Subject to certain limitations, if an asset is worth more when someone dies than she paid for it, her estate can apply the $1.3 million basis allowance to the difference. Once this allowance is used up, there might be income tax, but it's not triggered--meaning it doesn't have to be paid--until the asset is sold (a common misconception). At that point the total amount subject to tax would consist of the difference between the date of death value and the basis allowance, plus any appreciation after the date of death.

Click HERE to read the full Seven Steps for 2010 Heirs in Forbes.