The “Daily Plan-It”
Keating Law, PLC
Volume 12, Issue 4 2/25/2010
© 2010 Keating Law, PLC, Phone: 586-498-8400. All rights reserved.
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estate tax bill or to extend 2009’s rules of a $3.5 million exemption and 45% tax, the estate tax law automatically repealed on Jan. 1.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.
Interesting Case Study
The Wall Street Journal recently ran an article about this fiendishly complex issue titled, “Why No Estate Tax Could Be a Killer.” You can read the article here: http://bit.ly/aWepg8.
In the article, attorney Beth Shapiro Kaufman developed estimates showing who would be better off under last year’s law versus this year’s system. She determined that heirs of estates with assets totaling between $1.3 and $4.3 million would have been better off last year, while those with larger estates will fare better this year.
This is a very interesting argument that is causing a lot of discussion.
Our suggestion is if you have a client with any low basis assets, whether they are stocks, a family business or real estate, talk to them now about how this new law works.
What to Tell Clients
Urge clients to review their assets with an estate planning attorney to determine how the new law will affect them. In addition, encourage them to avoid irrevocable actions, such as distributing or selling assets, while this situation remains unresolved.
As always, I hope this article has helped you and your clients. If you have a specific concern or issue, please contact our office.
Thomas H. Keating has actively practiced law for 25 years, focusing on business and estate planning, with emphasis on the automotive and construction industries. Mr. Keating belongs to the State Bar of Michigan, the American Bar Association Section on Real Property,
Probate and Trust Law, the State Bar of Michigan Section on Probate and Estate Planning, NAIFA, and the Michigan Forum of Estate Planning Attorneys. He is the founder of the Financial and Estate Planning Keeping Current Series as well as the East Side Business and Financial Forum and is a member of the Financial and Estate Planning Council of Detroit. Mr. Keating is a member of WealthCounsel, a national forum of estate and business planning professionals, multiple chambers of commerce, and industry associations, and is a frequent speaker at estate planning forums around Michigan. Mr. Keating is co-author of Strictly Business, book written for those facing business and succession planning challenges.