In today’s New York Times, the Gray Lady herself published an article called “A Bizarre Year for the Estate Tax Will Require Extra Planning.” In it, the author discusses what we’ve written about previously – that the estate tax is currently dead but certainly not buried (we also wrote about it here and here). Not to rehash our prior posts, but the current estate tax is gone, Congress intends to re-enact it – in some form – and probably will make the new legislation retroactive to January 1, 2010.
An interesting thread in the piece, that we haven’t written about, is the interplay between the estate tax and the capital gains tax. Previously, the estate tax scheme valued property at the time of he owner’s death and did not calculate any gain on the value of an asset. But, with the estate tax out of commission, the capital gains tax steps in to fill the void. So, let’s say someone bought a house in 1975 and died this week, leaving the house to two children. If the children sell the house, they will be responsible for paying tax on the appreciation in the house’s value from 1975 to 2010. Ouch (there is an emergency IRS ruling that grants a small capital gains exemption on some property, and a larger exemption for surviving spouses, which should ease some of the pain). And that, sadly, is the easy part. Assume that instead of a house, that same person spent $10,000 in 1975 on stocks. What price per share did s/he pay (unlike houses, there are no public records of every stock share transaction)? Have the shares split? Was the company bought? Does the broker who sold the stock still exist? Headaches galore…
Not only will the capital gains tax affect some heirs significantly, it will affect many more heirs than the estate tax would have. Early estimates assume that about 70,000 people will be hit by the new capital gains tax requirements. About 5,500 would have been affected by the estate tax at 2009 rate and exemption levels. Are you one of those people? As the articles goes on to say, the best way to figure out what this all means is to sit down with your financial advisor and estate planning attorney and make sure that your estate plan still fulfills your needs. We couldn’t have said it any better ourselves.
[…] 3, 2010 by ulluccilaw As we’ve discussed previously, right now there is no estate tax. As a result of a prior tax deal, the estate tax was phased out […]