Seven Steps for 2010 Heirs

Ever since the lapse of the federal estate tax, many people have discussed the windfall it’s creating for wealthy families. But most people don’t realize that this may not be the case. Before this year, heirs valued inherited assets at the fair market value at the time of the decedent’s death. This year, heirs must use the decedent’s basis as their own when computing income taxes owed on the sale of these assets. The following seven steps can help guide you in this situation:

1. Have assets appraised. In order to determine your estate tax bill and where you want to allocate your $1.3 million carryover basis, you need to know the value of assets in your estate.
2. Locate purchase records. If you can’t prove the cost of an asset, the IRS will assume a value of zero and you’ll be responsible for capital gains taxes on the entire amount.
3. Delay selling appreciated assets. It’s possible that inheritors may be able to escape these carryover rules by delaying the sale of the assets until next year.
4. Postpone distributions. Congress could restore the estate tax retroactively. If the assets have already been distributed, paying the estate taxes will be very difficult.
5. Extend paperwork deadlines. Just like an income tax return, you may be able to extend the deadline for the carryover basis reporting paperwork to October 15.
6. Apply the basis allowance fairly. Don’t apply it to particular assets that will benefit one beneficiary more than another.
7. Guard against an executor’s added risks. If beneficiaries disagree with the executor, the executor should do what they ask, but get the beneficiaries to sign a document releasing the executor from liability.

See Deborah L. Jacobs, Seven Steps for 2010 Heirs, Forbes, Aug. 23, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.