With the confusion that has been caused by NO estate tax this year, we thought it would be wise to chime in on the matter. If you haven’t already heard, the federal estate tax was NOT reinstated for 2010 or in morbid terms — If your spouse passes, you won’t be subject to federal estate taxes. In prior years, the spouse would only owe taxes if the estate’s value exceeded the estate tax exemption limit or $3.5M in 2009. This all sounds great but the new law is not all peaches & cream. If your estate planning documents aren’t properly updated as we explain below, there could be SIGNIFICANT tax ramifications. Also, keep in mind that Congress is considering retroactively reinstating the $3.5M estate for 2010, which means you should try to prepare for both scenarios.

Review Estate Planning Documentation
We’re advising clients to update their estate planning documentation to best reflect the INTENT of the distribution of assets. For instance, if an individual’s Will states that assets will be distributed to the individual’s spouse – up to the estate tax exemption amount after which the children will be receiving the remaining assets – that would essentially leave the spouse with nothing since there is technically no estate tax as of now. It’s recommended that individuals revisit, examine and change where necessary the documentation in their estate plan to better reflect the desired INTENT.

Inherited Assets Now Carryover Original Cost Basis
That’s right – if you will be inheriting assets such as stocks & bonds, they will now be taxable based on the original cost basis of the asset. Let’s suppose you inherited some stock from a relative, you will have to dig through all of the relative’s financial documents to find out the original cost basis of the stocks.

Related Articles
->Gifting Millions And Not Owing Any Taxes
->No Estate Tax for 2010 But Returns in 2011
->Why A Roth IRA Makes Sense For a Teenager