Inheritance increasingly valuable for estate planning
In 2014, it’s good to be the heir.
Increasingly, financial experts are urging their wealthy clients to set up an inheritance for heirs instead of making a direct gift, The Wall Street Journal
reports. This stands in contrast to late 2012, when wealthy individuals and couples rushed to give gifts before the year turned, fearful that Congress might cut the size of the estate tax exemption. http://tinyurl.com/n5obawj
By giving away assets via an inheritance, it saves the heirs money on capital gains taxes when they decide to sell those assets. A tax break known as the step-up in basis is the key.
Hurry up and wait
This year, the estate tax exemption for individuals is $5.3 million and $10.6 million for couples. Therefore, the WSJ
says, large gifts that reduce an estate for tax purposes no longer make as much sense as they did just two years ago.
In 2012, the wealthy were giving away everything from real estate to securities to art and other valuables — so much so that estate planning advisers couldn’t find enough qualified appraisers to help their clients set up those gifts, the WSJ
The rule now is to wait before making a big gift. Because of the large estate tax exemption, some of your clients can better protect their heirs’ assets by setting up an inheritance instead of making direct gifts.
With an inheritance, heirs can take advantage of the step-up in basis tax break. This rule helps reduce capital gains taxes because the heirs’ are able to set the value of their asset — stocks or a house, for example — at its current market value rather than what it was worth when the decedent bought it.
Say Dad bought a three-bedroom house in 1950 for $6,500, but today it’s worth $350,000. Starting at Dad’s price, the capital gains hit would be enormous if the heirs decided to sell the property. With the step-up in basis rule, they would save thousands, perhaps tens of thousands.
When you give a gift, the WSJ
says, you want to make it as valuable — as powerful — as possible. And using the step-up in basis advantage is a way to make the inheritance more powerful, and thus longer lasting, than a simple gift.
The step-up in basis rule is truly the gift that keeps on giving.
We hope this information was useful to you, your clients and their families. To get more information regarding this or any related topic, please visit our website www.TEPLG.com
or call us at 630-871-8778.
Tags: estate planning, estate tax, taxes