If the estate tax is finally eliminated, the current thinking (applicable to persons dying in 2010 only for the time being)is that $1.3 million in selected assets get a step-up in capital basis. The remainder of the estate does NOT get a step-up.
Simply put, this means that if you inherit grandpa's stocks or his business, and you later sell the asset, you pay capital gains taxes on all gains based on grandpa's capital basis. This is a nightmare waiting to happen.
Moral: don't wish for the end of estate tax until you are sure that a new nightmare is not waiting in the wings.
Bingo.
This is a paperwork nightmare. When did grandma buy the stock and how do you really know her basis with reinvested dividends etc.
I have discussed this with conservative financial planners and it is a trade off they are willing to accept, not me.
While working as a Paraplanner planning firm I attended an AES seminar on the 2001 Bush Tax Cuts.
The attitude of the CPA's, CFP's and Attorneys, essentially "Oh those silly Congress, ha.ha ha". They are laughing all the way to the bank with such buffoonery and additional unproductive throughput for all of us as become the gatekeepers to this madness and they collect their toll to assist us in navigating through these waters. Jefferson and Hamilton are rolling over in their graves....
A good point, re: capital gains taking over for estate taxes. Of course capital gains rates are low and maybe could be lowered by this administration? But the other thing is that these gains can be postponed until the item is sold. In the casre of farms, this might be a long time. It does make for problems among siblings who need to split an estate.
The estate tax is bad. The fact that the government could come up with something just as bad, or worse, does not change the fact that the estate tax is bad morals and bad economics.
From an accounting standpoint, a step-up in basis - that is to say, a new basis - is standard when there's a change of ownership. It's not something you have to pay tax on unless you sell the asset. Eliminate the capital gains tax, anyway :-).
Do you know what a "Family Limited Partnership" is?