Many people are aware that since Congress failed to act the Estate Tax and Generation Skipping Transfer Tax are repealed for this year only. While this is certainly true for the time being, there are a number of pitfalls to watch out for. Before you decide that there is nothing to do as an executor/ administrator or successor trustee of a deceased loved one consider the following.
- Congress can still reinstate the Estate Tax and Generation Skipping Transfer Tax retroactively
- regardless there is only 1.3 million in stepped-up basis available.
First, as stated above all authoritative commentators that I am aware of indicate that Congress can retroactively enact legislation reinstating the Estate Tax and Generation Skipping Transfer Tax. Estate tax returns are due generally 9 months from the date of death. This means that for people dying on January 1, 2010 their returns aren't due until approximately October 1, 2010. Even assuming that Congress lacks that authority expect both Congress and the Department of the Treasury to take the position that it can. Therefore, one would likely be tied up in expensive litigation for years before prevailing on this issue. For most people not inheriting vast fortunes( in the tens of millions) it is probably not going to make sense to fight the IRS on this one.
Second, Congress left a little doozy in the legislation that repealed the Estate Tax. Congress still wanted the taxman to get his pound of flesh so he altered the system. Previously, all property inherited received whats known as a "stepped-up" basis to the value of the property on the date of death or an alternative valuation date. This meant that if the heirs had to sell property they would essentially never pay any capital gain income taxes on the sale of the property. Now however for 2010 decedents can only pass along $1.3 million worth of this "stepped-up basis." So many heirs inheriting estates that have a value above $1.3 million but below the $3.5 million applicable exclusion amount of 2009 are actually far worse off.
The combined worries create several problems for personal representatives of people who died in 2010. For one there is a great deal of uncertainty about the Estate Taxes. Most attorneys will advise their clients to file for the automatic extension. Additionally, distributions to heirs will likely take longer this year. Likewise, it will be difficult for heirs to actually determine what their basis in inherited assets are (if in excess of the $1.3 million allowed currently). Finally, there now exists a difficulty for the personal representative to allocate the "stepped-up" basis. Particularly for anyone acting as a successor trustee this will create thorny issues. Trustees as fiduciaries owe beneficiaries duties of impartiality. This means that successsor trustees may have to allocate the precious "stepped-up" basis in a fair manner. Trustees of larger estates will likely seek court instructions. As usual the more modest Estates will be more murky as successor trustees will be less inclined to seek instructions of the court due to the expense involved.
ABOUT CHRISTOPHER R. TWINING
Christopher R. Twining, Attorney at Law, based in the Westwood Neighborhood of Los Angeles is an innovative estate planning, probate & trust administration, and elder law attorney, who offers in home services for busy and movement challenged clients. The Law Office of Christopher R. Twining serves the cities of Los Angeles, Santa Monica, Culver City, Beverly Hills, West Hollywood, Pasadena, Burbank and the neighborhoods of West Los Angeles, Westwood, Brentwood, Bel-Air, Pacific Palisades, Palms, Pico-Robertson and Encino. Dedicated to helping individuals and couples prepare comprehensive estate plans according to their wishes; he offers them these services at an affordable price, in the relaxed comfort of their homes. For more information about his services, please visit http://www.twininglaw.com or call (310) 492-5990.
CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775-9774
http://www.twininglaw.com
Jim with the enactment of the new law this should no longer be a concern. You should be able to get a complete step up in basis on the date of death amount and use the $5 ( this amount could be reduced based on decedents lifetime gifts) million applicable exclusion amount to owe no Estate taxes. You will not be able to use alternative valuation date values because it won't reduce the estate tax due when there is none. Please consult a qualified Estate attorney in your area.
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