Retroactive Planning for Estates of 2010 Decedents

The recent Estate, Gift and GST legislation gives executors of estates with 2010 decedents flexibility to elect no estate tax with Modified Carryover Basis or to follow the new legislation including, $5 million exemption, 35% tax and full basis adjustment to date of death value.

Code Section 1022 establishes Modified Carryover Basis rules that allow the basis in qualifying property acquired from a decedent dying in 2010 to be stepped up in the aggregate by $1.3 million for property passing to a non spousal beneficiary and an additional $3 million for property passing to a surviving spouse.

Executors with 2010 decedent estates that exceed $5 million may want to consider electing the Modified Carryover Basis. Since the executor is electing to avoid current estate tax in exchange for an incomplete basis step up and income tax at some point in the future when the assets are sold, the decision factors include:

  • size of the estate,
  • makeup of the assets included in the estate,
  • whether the estate assets will be kept or liquidated, and
  • expected future capital gains tax rates

Executors have until September 17th 2011 (nine months from the date of enactment) to decide which set of rules fit best with the facts and circumstances of their estate.

We waited a long time to get some certainty in estate tax laws and now we have rules and options, but only for the next couple of years through the end of 2012. Then once again we will be left to wonder “What will Congress do”?