Don’t Die in 2010 With Appreciated Assets

January 14, 2010

Expired Estate Tax Could Lead To Costly Court Battles
By: Tara Lynn Wagner

The expiration of the estate tax may sound like welcome news, but experts say it’s actually going to cause a multitude of problems that could lead to long, bitter court cases for survivors. NY1’s Money Matters reporter Tara Lynn Wagner filed the following report:

The reading of a loved one’s will can be a difficult occasion, but this year that scene could be a little more complicated. The estate tax for 2009 was 45 percent on assets above $3.5 million left to anyone other than spouses. That law expired with the start of 2010, meaning unlimited amounts of money can be passed on tax-free this year to survivors.

However, certified public accountant Alan Kahn of AJK Financial Group says while the estate tax may be gone, in its place is the more complicated and potentially costly capital gains tax.

Under the old law, any assets that accrued value over one’s lifetime could be transferred without being taxed on the profit. That is no longer the case.

“For example, you have a $10 stock that grandma purchased 50 years ago and that stock is now worth $100, you will have to pay tax on that gain of $90, which you did not have to do before,” says Kahn.

The other big problem is one of language. In years past, wills simply stated that the children, grandchildren and other survivors were to be given the maximum amount possible up to the point where the estate tax would kick in. Before January 1, that meant that children would each get $3.5 million each and the spouse would get everything else.

“Come 2010, somebody could read that will to mean, ‘Well, if my children can get the most that they can get without estate tax, there’s no federal estate tax in 2010, does that mean they get everything and I disinherit my spouse?’” says Racusin.

Attorney Warren Racusin of Lowenstein Sandler PC says as a result of this glitch, many families will wind up in what could be very ugly court battles. He advises that people use estate planners as soon as possible to start reviewing estate plans.

“It takes time, it takes effort. It takes some expense but the expense of doing it right is minuscule,” says Racusin. “It’s peanuts, compared to the cost of having to clean things up after someone has passed away and you haven’t dealt with it.”

The tax is hardly gone for good. At the moment, it’s scheduled to kick in again in 2011, with a lower exemption of just $1 million and a higher tax rate of 55 percent.

While the law may have expired on New Years Day, experts say the nails aren’t yet in the coffin. Congress is likely to revisit this issue in the next few months and could pass a tax retroactive to the start of this year, which means those who inherit money tax-free this week may still have to later give a share to Uncle Sam.

“And that’s a big problem. That’s a constitutional problem that we’re going to see in the courts for many, many years to come,” says Kahn.

Technorati Tags: estate tax, estate, unified credit, wills, probate, taxes

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