This year’s temporary repeal of the Federal Estate Tax has created a new set of problems for those inheriting appreciated assets. Amy Feldman details these problems in her article “Trouble For Heirs” found in the April 25, 2010 issue of Bloomberg Businessweek. There is no Federal Estate Tax in 2010, but stepped-up basis of assets is limited to:
1. $1.3 Million of assets determined at date of death.
2. An additional $3 million for the surviving spouse.
3. Basis allocation based on the Executor’s discretion.
In addition, there exists the practical problem of finding all the records to determine the basis especially where dividends have been reinvested or improvements have been made to real property. How many people have all those records that could go back 50 to 60 years or more.
Maryland heirs’ situation is further complicated by the State’s Estate Tax of up to 16% on amounts exceeding $1 million. The Maryland Legislature did pass emergency legislation to protect the bypass exemption to the December 31, 2009 amount of $3.5 million. The legislation solves one of the problems that Amy Feldman mentions in her companion article “Wills That Won’t”. However, for most families putting up to $3.5 million in a bypass trust leaves nothing to pass outright to the surviving spouse creating even more unintended consequences.
Families with wills or trusts that contain bypass provisions should schedule an appointment with their attorney to review their documents. Changes may be needed to comply with the 2010 Estate Tax Laws. Most Estate Tax Lawyers predicted that Congress would act to extend the Federal Estate Tax at least by early 2010. It is now May 2010 and time for astute families to act to ensure their legacy is protected.