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Decisions, Decisions

By October 19, 2011October 24th, 2018Estate Planning Blog, Robert Lamm

Robert Lamm

In 2010, the Federal Estate Tax was repealed.  Then, it was brought back on December 17th of the same year.  Confused?  Join the club.

The executor of an estate for a person dying in 2010 will have to file an estate tax return after all, but fortunately, they can decide what  estate tax law to apply.

The IRS provides guidance in IRB 2011-40 which can be found on their web site at  Translated into English, IRB 2011-43 states that if you wish to avoid the estate tax entirely, you will have to make an irrevocable election by filing Form 8939 (to be filed no later than Jan. 17, 2012).  Of course, the devil is in the details.  By making this election, the assets of the estate will not receive a full step up in basis for income tax purposes and instead will be subjected to a modified carryover basis regime.  Why does this matter?  It matters in that when the particular asset is sold, income tax will most likely be owed.  If, on the other hand, the executor wants a full step up in order to avoid income tax, the executor must make the estate subject to the estate tax.  In other words, pick your poison.

So, which is the best choice?  It depends on several factors.  For instance, if the estate is less than $5 million (the current exemption amount), the executor will want to file the estate tax return and not make the election so that the assets will receive a full step up.  On the other hand, if the estate is substantially larger than the exemption amount, the estate taxes imposed will negate any advantage in obtaining a full step up for income tax purposes.    As is usually the case,  the executor will need to sit down with their CPA and figure out which option yields the best result.