The Estate Tax Mess — When Members of Congress are More Concerned with Politics than Governing
Tuesday, July 6th, 2010Under the law as it exists today, each individual has a limited amount of property that can pass to heirs with a stepped-up basis. All other capital assets with be taxed under the capital gains structure based on the cost of the property when it was first purchased, unless there is some other provision of the tax code that affects how the property will be taxed or not taxed.
Under the old law, no matter what the price of the asset was when purchased, when it transferred because the death of the owner, the “profit” passed to the new owner without tax. This was not simply a deferral of the payment of a tax; this was a tax that never had to be paid.
As the year 2010 approached, most people believed that Congress would clean up the mess made by it by passing President Bush’s 2001 estate tax changes. Estate Plans were drafted with attorneys and clients convinced that Congress would act, and the draconian changes scheduled to occur in 2010 would not take place. They were dead wrong.
On the other hand, there is a part of the Bush tax mess that does affect a great many families who lose loved ones in 2010. This part is the change in what is called the “step-up in basis” that affects capital assets like homes or stocks.
As Republicans tied up Congress with their strategy of “No,” and Democrats ignored the realities of the situation, no change of the Bush estate tax mess ever took place. What are the consequences?
To the delight of many (even though not affected), there currently is no federal estate tax. But, with the previous exemption of $3.5 million in place in 2009, relatively few estates were affected by the federal estate tax, anyway. So, eliminating the federal estate tax affects very, very few people who pass away in 2010.
