2010 Decedents and the Necessary Estate Tax Opt-Out ProceduresAugust 26, 2011
If a member of your family with assets in excess of $5 million died in 2010, you may consider the estate tax savings associated with making an election to opt out of the 2010 estate tax system. The recently issued IRS guidance mandates that the form effectuating such an election be filed by November 15, 2011 for year 2010 decedents.
On December 17, 2010, Congress passed new estate, gift, and generation skipping transfer tax laws that effect decedents dying in 2010, 2011, or 2012. The rules for 2010 decedents are unusual in that the executor (personal representative in Florida) has the ability to elect to either (i) subject the decedent’s estate to the 2010 estate tax system, or (ii) opt out of the 2010 estate tax system in favor of the carryover basis system.
In sum, under the carryover basis system, the decedent’s assets pass to his or her intended beneficiaries without subjecting those assets to the estate tax. However, only a limited amount of the built-in gain can be eliminated via this “step-up” in basis, and therefore, much of the existing gain could still be subjected to capital gains tax when sold. Currently, the maximum capital gains rate is equal to 15% of the difference between the fair market value and the basis of the assets. In contrast, the estate tax system allows for a decedent to pass $5 million to his or her intended beneficiaries free of estate tax and to receive a full “step-up” in basis for all assets. However, under the 2010 estate tax system, the value of the assets in excess of $5 million would be subject to the estate tax at a rate of 35% of the fair market value of those assets.
Please contact us should you have any questions regarding the relative tax savings associated with choosing either option.
Members of the Estate Planning and Tax Group, Gould Cooksey Fennell, P.A.