Finally, there is an input line for the "present value factor" which can be used to discount the capital gains taxes paid by the beneficiaries on sales based on the assumed sales dates back to the present, to compare with the estate taxes due if the estate tax is paid. The gain is only for the difference between FMV of the asset at decedent's death and the adjusted basis, since any other gain due to appreciation after inheritance would be taxed the same under either option.
The gains recognized by each beneficiary are then totaled, and any carryover basis exception allocations described above are subtracted from the gains. Then, the net taxable gain is taxed according to the appropriate capital gains rate for that year input above , and the net tax due is discounted back to the present. Thus, it appears that electing carryover basis in this situation is the optimal decision for the executor. By John O. Everett , CPA, Ph. Duncan , CPA, Ph. Because it did so late in , Congress gave executors of estates of decedents a choice: Either they could apply the new provisions or the prior-law regime of no estate tax but with a modified carryover basis of assets.
Congress also extended the due date for such estate tax returns to Sept. With future capital gains tax rate increases also possible, a prime factor in either option is anticipated future tax rates and the estate exclusion amount.
Justin P. Ransome justin. To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at pbonner aicpa. CPE self-study. For more information or to make a purchase or register, go to cpa2biz. On-Site Training. Go to aicpalearning. The Tax Adviser and Tax Section. The Tax Adviser is available at a reduced subscription price to members of the Tax Section, which provides tools, technologies and peer interaction to CPAs with tax practices.
The Section keeps members up to date on tax legislative and regulatory developments. Visit the Tax Center at aicpa. The risk, however, is that the previous tax rate, which was 10 percent higher, could be restored retroactively. Normally, when you give assets directly to grandchildren or set up a trust to do so, you need to plan for the generation-skipping transfer tax.
This tax applies on top of estate tax and gift tax. With the repeal of the GST tax for one year at the start of , advisers are proposing a variety of techniques to maximize gifts to grandchildren. How they will be affected by a law that takes effect retroactively remains unclear. Proceed with caution. For all the talk right now about estate tax repeal, this tax affects very few people.
In less than 1 percent of the population needed to be concerned about estate taxes. But regardless of your net worth, you still need an estate plan. And estate planning goes far beyond taxes.
Be sure you have all the basic estate planning documents to leave your assets to the people or charities that you wish to benefit. If you have a spouse or partner, provide for your mate financially. Name a guardian for children who are minors or have special needs and leave funds for them in good hands in case something happens to you. This document appoints a family member, friend or adviser as an agent to act on your behalf in financial and legal matters, and remains effective even if you become incapacitated.
Without one, your family might have no choice but to ask a court to appoint a guardian to oversee your finances. This can be an expensive and embarrassing ordeal. The best person to put in charge is a close family member — preferably one who lives nearby. Naming joint agents, which is allowed only in some states, is one way to provide checks and balances. Or you can appoint another person, such as an attorney, an accountant or a family friend, to supervise the arrangement.
Although the two are sometimes confused, a durable power of attorney, which deals only with financial matters, and a health-care proxy, which authorizes someone to make medical decisions on your behalf, are distinctly different. Certain types of assets do not usually pass through a will or living trust. Even if no federal estate tax is owed in , an estate may be liable for state estate tax and would benefit from estate tax planning.
Because of this highly unusual situation, it is difficult to offer generalized advice that applies across the board. Also, we do not know whether Congress will retroactively continue the estate tax at the level, allow the one-year repeal to take place and revert to the old law, or do something else during this year. Our attorneys can also help you take advantage of unique planning opportunities that the repeal presents in Opportunities may include transfers to grandchildren free of generation-skipping transfer tax and gifts at a reduced gift tax rate.
The information contained herein is general in nature and based on authorities that are subject to change. This material may not be applicable to specific circumstances and may require consideration of nontax and other tax factors. Contact our attorneys prior to taking any action based on this information. This document is not written tax advice directed at the specific facts and circumstances of any person.
As required by IRS Circular , to the extent this document may be considered written tax advice, unless expressly stated otherwise, any federal tax advice contained in this communication is not intended to be used, and cannot be used, for the purpose of avoiding federal tax penalties.
To help clients navigate legal issues and potential disruptions during these unsteady times, we have assembled vital resources in a number of areas.
Client Case Study. This firm client rescued a Puget Sound La-Z-Boy franchise out of receivership, then grew and expanded the business, and recently completed its sale back to the parent company. To his credit, the planner told his client to buzz off. It is true that, thanks to Senate gridlock, the estate tax has been repealed for But that gift came accompanied by a lump of coal: Some heirs may find themselves owing lots more capital gains tax when they sell inherited assets.
In other words, capital gains taxes would be based on the value of an asset at the time the owner died, rather than what he originally paid for it. But as a trade-off for what lawmakers presumed would be a repealed estate tax, heirs this year face a very different set of rules, known as carry-over basis.
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