by Paul K. Rudoy, CPA/PFS
One of the provisions of the Trump Tax Proposal (TTP) is the repeal of the Federal Estate Tax. This is an onerous tax that taxes people’s net worth after they pass away. Taxation begins currently at $5.49M, or married couples have the opportunity to increase this limit to $10.98M.
Generally, this means that the tax hits only about .2% of people who die or about 1 in every 500. Sounds like great news for those over the $10.98M stratosphere. It likely is for those taxpayers.
The down side is that one discussed way to pay for this is to eliminate the Step-Up in Basis rules. This is where assets cost basis are re-set to Market Value at death. For the under $10.98M, or $5.49M for singles, your heirs can acquire many assets like stocks and mutual funds, sell them after inheritance, and pay no income tax.
If the discussed elimination of the step-up goes away, this means when you inherit greatly appreciated marketable securities, you may get a tax bill with that inheritance. This could greatly change Estate Planning. The general rule now is if you have significantly appreciated securities for an elderly person, do not sell them and let your heirs sell them and avoid income tax on the gain. This strategy could totally change if the Step-Up in basis goes away as part of the TTP.
IMPORTANT DISTINCTION: This does not affect retirement accounts. They never received the step-up. Also, if you are a Pennsylvania decedent, the 4.5-15% inheritance tax for non-spousal bequests is likely here to stay.
Therefore, Estate Planning is still important. The focus of what saves you money, though, could be greatly changing.
Contact H2R CPA at 412-391-2920 or firstname.lastname@example.org with questions you may have regarding Estate Planning. We are always here to help.
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