2010 An Estate Odyssey

[JG EA]

In reading about this year - I have some simple-minded questions:

"For the year 2010, "step-up" will be replaced by "carry-over basis" rules. Carry-over basis generally means the basis of inherited property remains the same as it was for the deceased owner; which potentially increases the amount of gain (and tax) when the property is sold. When property is inherited, the heir can choose to take a "step-up" in basis for only $1.3 million of the property. For any amount inherited over $1.3 million, the heir's basis will be the smaller of the deceased owner's basis or the date-of-death-market value. The basis of property passing to a surviving spouse can be increased by an additional $3 million."

Does this mean what it sounds like - that if a client inherits something they can simply choose to take FMV or basis whichever is better for them?

Right now there is no estate tax at the estate level, but may congress change that sometime before the end of the year retroactively?

[Snaggletooth]

The A-B Trust

JG, I am confused as well.

One thing is obvious, the $3MM increase in basis defeats the very foundation of the common "A-B Trust" which splits the ownership between husband and wife and gives each spouse a full estate exemption.

I don't know whether this is all good or all bad, but it enabled a smiling George Bush to announce to America that he had "abolished the estate tax." That was 8 years ago, and I think all of us expected that Congress would have the good sense to "do something" before now...

What a mess. The bad thing about tax planning is you usually cannot pick and choose what year you wish to die.

[Lion]

No

No, JG. You don't get to choose your basis. Your basis is -- as you stated -- the smaller of...

[Davc]

The heir doesn't choose which assets get a DOD value as basis.unless they are the executor or trustee. Note that if this law isn't changed I will never again do a 706 or 1041 when there are co-executors or trustees.