Mind the Estate Tax Gap

The article "Mind the Estate Tax Gap", discusses how much of a mess an estate tax break law has become and the consequences many will face due to it not being fixed by Congress. Although estate taxes will return to their normal 55% in 2011, 2010 will be a year where there will not be an estate tax. This may seem like a lucky break for wealthy heirs of the ultra-rich, however many will end up paying high capital-gains taxes on these inheritances. This is so because of the disappearance of the "step-up" in basis, which allowed assets to be revalued for tax purposes at the time of death. For heirs who inherited homes or family businesses that have grown in value, the "step-up" rule allowed them to start with a clean slate, owing no capital-gains when they sold the assets. Now, an executor can assign a "step-up" basis of up to $1.3 million to assets in the estate, and an additional $3 million for assets left to a surviving spouse. Things get even more complicated when there are multiple heirs receiving multiple assets, a task which requires the executor choosing how to allocate the $1.3 million in tax basis among the assets. This task has led to many executors facing lawsuits from unhappy heirs. According to Clay Stevens, Director of strategic planning at Aspirant, "Many people are going to be worse off than before". Regardless of whether or not Congress fixes the problem before the end of the year, it may be too little too late for some families as we are already well into the year 2010.