Friday, May 21, 2010

Death Tax Lives in Estate Repeal for Heir Who Must Sell Assets - Bloomberg.com


Estate planning is not known for its funny situations. People who help others in planning for the disposition of their assets in anticipation of their death are always looking for ways to lighten what can often be a fairly serious discussion.

And so in recent years it had become a standard joke to say, "Well, if you're going to die, 2010 is a good year to do so, since there's no federal estate tax."

But, as it turns out, this is not exactly the case. When Congress changed the estate laws in 2001, it inserted some provisions that many not know about that can affect estate tax returns in 2010.

For example, while there is not a federal estate tax in 2010 (although there still is state estate tax), but there also is not the usual step-up provision for inherited assets that historically had been the case.

The capital gains tax does not kick in until after the first $1.3 million in capital gains, but stock that had been held for a long time it possible that the gains could be considerably more than this figure.

Here's an excerpt from an article in the June issue of Bloomberg Markets:

A sole heir who sells inherited assets valued at more than $1.3 million must account for their original cost. So if Grandpa bequeaths 100 shares of
Google Inc. he bought in 2004’s initial public offering at $85 a share to a granddaughter and those shares were worth $600 each in January when he died, the granddaughter would pay a 15 percent capital-gains tax on $51,500 if she sells the stock, or $7,725.

Last year, the granddaughter might have paid nothing because the old estate-tax law effectively reset the securities’ worth to fair market value on the day they were inherited.

It gets more complicated. People who inherit stock have to reconcile the original price paid for each share with decades of splits and reinvested dividends. Heirs also must account for the initial price of coins or stamps in a collection.

The recipient of Grandma’s Renoir or Monet has to determine how much the grandmother paid for the painting -- or its value at the time she may have inherited it. For collectibles such as art and jewelry, the capital-gains tax rate is 28 percent.


Death Tax Lives in Estate Repeal for Heir Who Must Sell Assets - Bloomberg.com