Estate Planning 2010

provides a nice summary. There are some minor issues (e.g. spouse dying within six months of first spouse dying) but you got it right.

Most of the OP snipped

Skip - you got most of it right. Joe Taxpayer has provided a link that should fill in any blanks.

I'd also like to note that IMNHO the biggest problem we're going to see with

2010 estates is the carryover basis - if Dad inherited from Gramps 40 years ago, the basis stepped up. Then Dad's basis stepped up for any additions, these should be easy to track. Now, after 40 years have passed, along with Dad, and Jr. get the property.

How is Jr. ever going to be able to figure out what the basis was when Gramps passed 40 years ago?

I'd bet a months pay that most people never kept Gramps' estate return, assuming of course one was filed to start with. Sort of throws all the Document Retention Rules we've used for decades out the window!

Gene E. Utterback, EA, RFC, ABA

If the estate (or the property in question) isn't huge, it will still get step-up basis.

the step-up in basis is limited to $1.3 million for the overall estate, plus $3 million for assets transferred to a surviving spouse

That should eliminate a whole hell of a lot of the potential problem. And if the estate is big enough (and the potential cap-gains step-up are bigger than those numbers), then the estate can afford to pay someone to do the research to come up with reasonable estimates of the basis. (Well, okay, good luck if it's what started out as AT&T stock 40 yrs ago)

Step-up on $1.3 (plus $3.) million is enough that something on the order of 99% of estates out there not only won't pay any estate taxes, but will also get step-up basis adequate to keep them from paying capital gains taxes, too.

The only way Dad in this story should have thrown away the info from Gramps regarding the basis in the property he inherited is if Dad (a) counted on eventual step-up (which was probably reasonable) and (b) was quite certain he'd never ever sell the property in question (which is *not* very reasonable). ie. if one owns property, one needs to know the basis - estate tax repeal or not.

SNIPPED

Two observations on your response -

First, I agree with what Dad SHOULD have done. The problem is that Should've, Could've and Would've, along with $0.89 will buy a small coffee at the 7-11. I'd do cartwheels in the streets of DC if the clients who came to see me had the correct paperwork from inherited or gifted property. For most of them it simply doesn't exist. Frequently because NO ONE ever bothered to A) open an estate or keep the paperwork from an estate that was properly done years ago; B) file a gift tax return on a gift of the requisite size; and C) even bother to ASK mom, dad, gramps or granny WHAT they paid for the stock that was gifted to them on their birthday, marriage, Christmas or whatever.

Second, many of us have always used the term "Step-Up" when in actuality the correct term is "Adjusted Basis" which could be a step down, especially in this real estate market for property what was "over improved". What the beneficiary gets is the Fair Market Value at the Date of Death of six months later if they elect the alternate date - this could result in a Step-DOWN. Its a small point and I'm guilty of using the wrong wording myself.

Gene E. Utterback, EA, RFC, ABA

I sometimes use the term "step-TO" basis because, as you said, it could be up or down. But in general the common usage is to say "step-up" because, in general, assets appreciate over time and most of the time the step is, in fact, up.

My point was, mainly, that enough assets still get step-to basis even in 2010 that it's not a big deal. The few estates for which this will be a problem are big enough to be able to pay someone for the time it'd take to clarify the basis.

I think we all use certain terms loosely. I never doubted that you knew the difference!

Now if only Congress could get themeselves in gear and fix the mess they've made for us. Or, I suppose, "unfix" it, because every time the fix it, they make a bigger mess...