To Die or Not to Die in 2010

Since 2001 we have had a stable estate tax with gradually increasing estate tax exemptions.


2002-2003          $1,000,000

2004-2005          $1,500,000

2006-2008          $2,000,000

2009                          $3,500,000

2010                          $0 ???

For now in 2010 there is no federal tax on estates.  Of course nobody believes this will last.  The House and Senate will most likely come to an agreement to bring back the $3,500,000 exemption.  This is what the House tried to pass before 2009 ended.  The Senate was too busy with healthcare, so no fix was passed. The Senate I believe is pushing for a higher exemption and doubling the amount for married couples which will eliminate the need for a by-pass trust.  In other words, if an estate was valued at $7,000,000 the assets would not need to be split for each spouse to receive the full exemption. In either case, when they do decide it will most likely be retroactive to January 1, 2010.  If you die before they decide your estate may have to litigate to keep the zero tax.  One drawback to not having an estate tax is your heirs would inherit your cost basis on assets.  This could cause your heirs to pay hefty capital gain taxes if they liquidate assets after your death.  In prior years assets inherited qualified for a step-up in cost basis, using the value on the date of death for the new cost basis.  An estate will have the ability to increase the tax cost basis by $1.3 million plus an additional $3 million for transfers to a surviving spouse. This caveat is still uncertain as to whether or not it will go back to the old way of a full step up in cost basis.

We will keep you informed as to the outcome.  In the mean time keep on living and enjoy the economic come back, and the future market growth we are certain to experience in the years ahead.

Gregory D. James, CFP®

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