So, with this capital gains tax in mind, what does that mean for planning? This is a question Forbesexplored in a recent article (intriguingly) titled “Freebasing Your Estate.“
The nut of the issue with capital gains is “cost basis,” a term for the original value against which the present value is used to determine the taxable portion of capital gain. Essentially, a “postmortem (at death) bequest” and an “intervivos (during life) gift” may transfer an asset with the same current value. However, they transfer a different cost basis to the inheritor and donee respectively. The inheritor inherits the “date of death” value as the basis of the inheritance. This is known as the “stepped up” basis. The donee receives and continues to hold the same basis held by the donor. This is known as the “carryover” basis.
With the estate tax now less of a concern, it makes more sense to transfer an asset at death rather than during your lifetime, all other considerations being equal.
What assets will you be transferring? Is the estate tax or is the capital gains tax a greater threat to your family wealth? Regardless, it is wise to keep in mind that what Congress puts into place it can just as easily undo.
