Friday, August 19, 2011

Executors of 2010 Estates Have Until Nov. 15 to Make Estate Tax Decisions

Everyone will remember the “wonderful boon” that was the 2010 estate tax repeal, which (in theory) allowed decedents to pass on their assets free of any estate taxes.  However, the situation was complicated in December of 2010 when, as this article in Bloomberg puts it, “Congress extended the tax retroactively [giving] executors of estates of people who died that year a choice. They could decide to skip the estate tax or pay the tax with a $5 million per-person exemption and a 35 percent top rate, the same as in 2011.”

Executors have had almost a year to consider their options, but now it is just about time to make the decision, because “the Internal Revenue Service is giving executors of estates of people who died in 2010 until Nov. 15 to opt out of the estate tax.” According to the IRS the forms and instructions for 2010 estate tax returns will be made available early this fall.

But executors don’t have to wait until the forms are available to consider which tax option might be the most profitable one. Many financial planners and estate planning attorneys have already done their research, and they’ve found that opting not to pay estate taxes may end up costing you more in the long run. This article in Forbes explains: “Opting out of the estate tax regime means opting out of stepped-up basis (for income tax purposes)… and opting into the modified carryover basis rule…  One of the main plusses about estate tax is that it is paired with a stepped-up income tax basis.  You should not be paying both estate tax and income tax on the same assets.”

Of course, each estate will be different depending on a number of factors, including the size of the estate, the nature of the assets, the preferences of the beneficiaries, and any previous planning the decedent may have done. Executors should consider their options carefully, and consult with an experienced estate planning attorney before deciding whether opting out of the estate tax is really in their best interest.