The Daily Plan-It: Why the Federal Estate Tax’s Repeal Might Cost Your Client’s Family More
No estate tax? Great! Uncle Sam won’t get a dime of my client’s estate if he dies this year, right? Not so fast. While that might be true for some clients, many beneficiaries who inherit appreciated assets now face a capital gains tax.
How Did This Happen?
Due to Congress’s inaction last year to pass a revised version of the 2001 estate tax bill or to extend 2009’s rules of a $3.5 million exemption and 45% tax, the estate tax law automatically repealed on Jan. 1.
What many experts didn’t realize was that this repeal also means the demise of a portion of the law that allows assets to be “stepped up” to their date of death value at the passing of the owner without the levying of a capital gains tax on the appreciation of those assets.
While the current law has no estate tax, it does tax assets that have appreciated above a $1.3 million exemption when sold by heirs. As an advisor, this presents you with an interesting and challenging issue when guiding your clients on their estate planning. While the demise of the 45% estate tax certainly helps some clients and their families more than a 15% capital gains tax would hurt them, the reverse can be true for many others. According to the Tax Policy Center, this change will negatively affect the families of at least 50,000 taxpayers who die this year. In contrast, the old law affected only about 15,000 estates per year.
