FEDERAL ESTATE TAX REPEALED FOR 2010
WOW! No Federal estate tax for 2010. Those who are reading this are glad we survived 2009. At that time, the Federal estate tax exemption was $3,500,000.00 per person.
So is the repeal good news? The answer is: not necessarily. With repeal came the concept of carry-over basis. This means that if someone dies in 2010, there is no automatic step-up in basis for assets owned by a person at the time of death.
For example, assume a person has stocks valued at $100,000.00 at the time of purchase, but $500,000.00 at the time of death. Last year, there would be no Federal estate tax because the stocks would get a step-up in basis to the date of death value of $500,000.00. When the stocks are sold, there will be no capital gain tax. And since the stocks are less than $3,500,000, there would be no Federal estate tax.
Now, however, the basis is $100,000.00 and when the heirs later sell the stock, there will be a capital gain tax to pay on the $400,000.00 of gain. Thus, there is a capital gain tax even though there is no estate tax. This is not a nice "surprise".
Most of us will not die in 2010. But that doesn't mean we shouldn't check our Wills. Please do so as soon as you finish reading this.
If your Will contains a fractional division of your assets upon your death, that is into a by-pass amount and a marital deduction amount, then you should probably seek advice to see whether or not your Wills should be changed.
On January 1, 2011, the Federal estate tax will return. However, the exemption will be only $1,000,000.00 and with inflation, it should be $1,340,000.00 per person. In addition, if there is a surviving spouse, an additional $3,000,000.00 of assets could be sheltered from estate tax.
Why is this important? The Federal estate tax rate will jump to 55% for Federal estate tax purposes on assets in access of the allowable exemptions. Please remember that the New York State estate tax maximum rates are 16% for assets in excess of $1,000,000.00 per person.
If you are feeling "overtaxed" with all of this, please feel free to contact John J. Roe, III for a review of your planning documents.
Even if you don't have any formula clauses in your Wills, you should probably contact us because the New York State form of Power of Attorney has been drastically altered. Powers of Attorney are important. Only in a rare instance will someone use the Power of Attorney to inappropriately take assets from the donor of the power.
Please look at your Powers of Attorney and call John J. Roe, III to make an appointment for any changes you think are required.