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IRS Issues Guidance for Estates of 2010 Decedents

Posted Monday, August 15, 2011 by Michael A. Larson

alt text On August 5, 2011, the IRS issued guidance to executors of estates for decedents who died in 2010. In Notice 2011-66, the IRS provides that executors of the estate of a decedent that died in 2010 may make an election on Form 8939 on or before November 15, 2011 to have the estate tax not apply and to have the Section 1022 carryover basis rules apply to property transferred as a result of the decedent’s death.

With the availability of a step up in basis of$1.3 million to assets passing to any person and an additional $3 million step up for assets passing to a surviving spouse, the decision to be taxed under the revised estate tax will depend heavily on individual facts and circumstances. However, for many estates the decision is fairly straightforward.

If the decedent’s estate is less than $5 million, the executor should generally not opt out, taking the basis step up to current fair market value and paying $-0- estate tax. For estates significantly greater than $5 million, the cost of the estate tax will generally exceed any benefit from a basis step up and the executor should opt out of the estate tax.

For estates in between, further analysis is necessary to balance the estate tax cost with the benefit from a step up in basis. Many factors are involved including the original cost basis, whether property will be held long term or sold quickly and the change in fair market value since date of death.

Executors should take note that if they choose not to opt out of the estate tax, the Form 706 for 2010 decedents is due by September 19, 2011.

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