Unexpected Consequences!

Posted by Bob Burton on Tue, Dec 22, 2009 @ 05:57 PM

For those of you who are pleased that there may not be any estate tax on the estates of decedents dying in 2010: don’t be.

As reported in one of my previous recent blog posts, not only did EGTRRA 2001 (George Bush’s tax bill) provide that there would be no estate tax on the estates of decedent dying in 2010, but it also provided that those estates would be subject to modified carry-over basis rules, which would (will) be a real calculation nightmare.

But that’s really the least of it, because the carry-over basis rules could lead to taxes on the estates of less affluent individuals than would not have been subject to estate tax under the law as in effect in 2009.

Let’s take a couple worth $6,000,000 that includes assets with significant built-in appreciation (perhaps they were smart enough to have gotten aboard the Google bandwagon when that stock first went public). With some simple basic planning, if death occurred in 2009, there would be no estate tax due on either spouse’s estate, and the Google stock would receive a step-up in basis to its value at death for the estate and for the couple’s family members who inherit the stock. But if death occurs in 2010, there could be significant potential capital gains taxes built into the Google stock.

In other words, the law that appeared to “giveth” only did so with one hand, because it also “taketh” with the other. With all of the lead time there was before 2010, no one I know thought it was possible that Congress would not take corrective action beforehand; yet that is exactly what has happened.

Most people still think that corrective action will be taken, and that it will be retroactive to January 1, 2010 (which the Supreme Court has ruled is perfectly legal), but these days, no one can be certain about anything that emanates from Washington DC!

All I can say is: stay tuned.

Happy Holidays to all!

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