Tuesday, January 12, 2010


Well, get ready. The 2010 changes in the Estate Tax have thrown confusion into the whole Estate Planning process.

Should this confusion stop anyone from executing an Estate Plan? The answer is NO. Estate planning is still a crucial act that will help your family and give you peace of mind.

Here are the changes. First, the Estate Tax is repealed for 2010. Theoretically, this means for anyone dying in 2010, their estate will pay no estate tax no matter how large their estate may be.

Sounds great doesn't it? Estate planning attorneys and other financial experts expect that Congress and the President sometime within 2010 will reinstate the Estate Tax, and here's the kicker -- they will probably make it retroactive back to January 1.

Trustees, attorneys, and others administering an estate for a person dying in 2010 are well advised to hold back some funds against possible estate taxes that may be retroactively imposed.

Second, along with the repeal of the Estate Tax, in 2010 there is an elimination of the "Step-Up" in Basis Rule as to assets in a decedent's estate. Prior to 2010 all property owned by a decedent received a basis increase to its value on the decedent's date of death. So, a surviving spouse or the family could sell an asset such as real estate or stock just following the death of the decedent and pay little or no capital gains tax because the basis was "stepped up" to the value at date of death.

Now in 2010, Capital Gains Tax will be incurred when the property is sold; the gain being calculated as the difference between the decedent's basis (when the property was originally purchased by the decedent) and when the property was sold after the decedent passed away. This is because there is no "Step-Up" in Basis in 2010.

The so-called "repeal" of the Estate Tax in 2010 is really a shift of the tax to the Capital Gains Tax. This is a shame because the Estate Tax has traditionally only landed on the wealthy, where the loss of the step-up in basis will cause the Capital Gains Tax to land on everyone.

Even if Congress reinstates the Estate Tax, I am not confident that they will do the right thing and reinstate the "Step Up" in Basis Rule for Capital Gains.

Under the present code, the Estate Tax and the "Step-Up" in Basis Rule are reinstated in 2011. Don't you wish they'd make up their mind? I'll cover the 2011 expected changes in a future blog.

In the meantime, I'll be watching.... Visit my website at http://www.tompkins-law.com

Attorney at Law

This blog is intended for informational purposes only and is not intended as a substitute for legal advice by a qualified estate planning attorney in your jurisdiction.

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