On February 15, 2010, U.S. News & World Report published Remember the Estate Tax? It's Still Gone, by Philip Moeller. The article captures the problems caused by Congress’s inaction. One additional burden that is not reported often enough is the added burden on practitioners:
[Jack Nuckolls, national director of private client tax services at BDO Seidman] and other estate experts have been flocking to estate tax seminars and continuing education programs so they can learn details of the 2010 estate laws. "I have to go learn these rules, and I think it's a total waste of time" because of the likelihood of Congressional action, he says. "In the meantime, people are really dying, and you have to do all these things."
The otherwise good article is murky with regards to the law in 2010. In the following paragraph, it is not clear when the capital gains tax would be triggered:
But as part of the end of the estate tax this year, this treatment of assets also was ended. Now, the value of the estate is subject to tax on the difference between its current market value and the value when it was originally obtained by the estate holder. And while there is no estate tax this year, there is a capital gains tax on these appreciated assets. It kicks in after the initial $1.3 million of an estate, with an additional exclusion of $3 million available for the surviving spouse of the estate holder. Now, that may seem like a lot of money, but it's not, particularly if the asset being valued is land (as in farm land) or a closely held business that has been in the family for a long time. Those assets may have very modest initial valuations, and their conveyance easily could trigger enough of a tax bite to force the sale of part or all of the asset that is inherited. This, of course, assumes the estate can even locate all the decades-old paperwork that would establish that initial valuation.
There is a capital gains tax on appreciated assets only when the assets are sold by heirs.
In a December 30, 2009 post on TaxProf Blog -- Mistake in Today's WSJ Front-Page Estate Tax Article -- Professor Caron reported about a similar error article in a Wall Street Journal article:
The otherwise excellent article contains this serious misstatement of the law:
[E]state planning in 2010 will be complicated by a new twist: a complex tax on capital gains, levied at death, that will affect a broader swath of taxpayers.
Of course, there is no Canadian-style capital gains tax at death. Instead, during the period of estate tax repeal (if the estate tax is not retroactively reinstated), the heirs will take a carryover basis in any inherited property, with any capital gains tax deferred until the property is sold by the heirs.
I highlighted Prof. Caron's words because they provide a very good summary of when the capital gains tax would be triggered.
