Choosing Taxation Plans for Decedents Who Died in 2010

May 22, 2011

There is an interesting article in the Wall Street Journal discussing which taxation system to choose for those taxpayers who passed away in 2010. The choice is between the estate tax system or the modified carry-over basis rules initially in place in 2010 when the estate tax was phased out.

Previous law gradually reduced federal estate tax over the years and eliminated it altogether for decedent's dying in 2010 subject to carry-over basis rules which could result in income/capital gains taxation. In 2011, the estate tax was to be applied to assets in a decedent's estate over $1 million at a rate of 55%.

New law, the 2010 Tax Relief Act increases the exemption amount to $5 million for 2011 and 2012 and is retroactive to January 1, 2010. Representatives for estates of decedent's dying in 2010 can choose between the estate tax scheme or no estate tax subject to the modified carry-over basis laws.

If the estate tax option is applied, the estate will be subject to the $5 million applicable exclusion amount at the top tax rate of 35% with a stepped-up basis. If the no estate tax regimen is applied the modified carryover basis rules with be in effect.