It is now old news that, on December 17, 2010, the President signed into law several changes to the federal estate tax. The $5 million exemption amount for both gifts and assets passing upon death provide extraordinary planning opportunities for 2011 and 2012. However, most importantly for the estates of decedents in 2010, the new law provided an additional benefit: those estates can choose between (1) no estate tax and no increase in the basis of the estate assets, or (2) a $5 million exemption amount and an increase in the basis of the estate assets to their fair market value. This "step up" is an obvious income tax advantage upon the sale of the assets.
So generally, for estates worth $5 million or less, they will likely choose to be subject to the estate tax system because they will obtain the asset basis increase but still avoid estate tax and filing an estate tax return. On the other hand, for those estates exceeding $5 million, they will likely elect no estate tax and also suffer the disadvantage of no increase in the basis of the assets. Either way, appraisals are still necessary to determine the value of the assets.
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