New York Times says 2010 a Bizarre Year for Estate Planning.
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Of all the crazy things for Congress to do — letting 2009 expire without addressing the estate tax problem facing us in 2010.
To be fair, the House did act, but the Senate did not; resulting in no estate tax for one year but it’s set to revive itself in 2011 at a higher rate and lower exemption, unless Congress acts this year. This will be the first time since 1916 that rich Americans can contemplate dying without paying any estate tax.
At first blush, this sounds great: no estate tax, but this also means the IRS provisions for date-of-death valuations are no longer applicable. Which means heirs may be responsible for capital gains tax on any appreciated property when they sell. What this means in plain english is that you’ll have to go back through all of your documents to determine the value of your assets today and their original price when they were first obtained, which would be the difference between what you or a family member paid way back when, and the price it is today. Gone is the step up in basis and say hello to higher valuations (In short, larger tax payments may be due). Think about a piece of property you bought twenty or thirty years ago and it’s still in your family. What did you pay for it then: $50k, 70k, 100k, 250k? Surely it’s worth substantially more now than way back then. The capital gains tax could be staggering. And that’s just the real estate, what about figuring out the original price for securities and other appreciable assets you’ve had for decades — another nightmare capital gain tax expense.
These problems, and many more, are not just problems for the affluent, but are also problems of the middle class. Here’s an example, say you had assets that were valued at up to $3.5 million dollars ($7 million for married couples), under the old tax rules you would be exempt from estate tax and there would be no capital gains tax on the appreciated assets. But now, this year – 2010 – there’s no estate tax, but there is a capital gains tax. So those assets valued at $3.5 million ($7 million for married couples) are suddenly subject to capital gain tax, and it could be a whopper of a tax bill. So you see, thanks to Congress, you – middle class America – now must pay taxes on your assets if you die this year, when you did not have to last year.
And we haven’t even mentioned gift tax and generation skipping tax changes, and what happens if Congress decides to make changes to the tax law later this year and retroacts it back to January 1, 2010. Can they legally do that (we know the Supreme Court said they can, but that was when there was an actual tax in effect)? Since there is no actual tax in effect, can Congress do it, if so, under what circumstances? And how is it going to affect you?
So what should you do? — see an experienced estate planning attorney right away. You’re going to need all of the help you can get. Congress really screwed this up.
If you’d like to read the NY Times article click here.
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