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Estate Planning Education Law

Federal Estate Tax: 2010 and beyond!

By: Ernest H. Tuttle, IV


Many people when they hear that their estate will not be subjected to federal estate taxes unless the estate has a value in excess of $3.5 million tune out for any further discussion on this topic. However, the longer Congress delays in enacting new legislation for estate taxes, the current laws remain in effect, meaning that in 2011 anyone that owns assets worth more than $1million dollars will need to plan to avoid estate taxes within their estate plan.

The federal estate tax, known to some as the "death" tax or “inheritance” tax, is scheduled to disappear in 2010 and then spring back to life in 2011 with an exclusion of $1 million and a top tax rate on the largest estates of 55%. In California, there are no estate taxes imposed upon death, meaning the only estate tax owed would be to the federal government if over the exemption amount. Estate planning tools can help reduce the amount of estate taxes owed to the federal government.

Another aspect of the current estate tax system that is discussed is the "step up" in tax basis. Essentially, the property and most investments in an estate get a new value for tax purposes when someone dies. It's this value that the heirs use to determine their taxable profit when the property or investments are sold.

Here's how it works. Say your parents paid $20,000 for stocks that were worth $200,000 on the day they died and bequeathed them to you. Without the step up, you'd have to pay capital-gains taxes on that $180,000 increase in value if you sold the investments. Thanks to the step-up, however, the stocks get a new basis of $200,000. If you sold them for $200,000, you wouldn't owe any capital gains tax.


Estates get this special tax bonus whether or not they pay any estate tax. For the vast majority of people that means the increase in value of their estates never gets taxed, either when they die or when the property they bequeath to others is ultimately sold.

Now that you understand how the step-up works, you can see why people become upset when they hear that the step-up system is scheduled to be eliminated along with the estate tax.

Fortunately, there's a big exception. The estate tax repeal law preserves the step-up for up to $1.3 million of assets you bequeath, plus an additional $3 million of assets given to a spouse. That means that up to $4.3 million of your estate may retain the step-up in basis.

If you or anyone you know has any questions about estate tax, feel free to contact us.


“After my husband passed, I didn’t know what to do or where to turn. After speaking to Mr. Tuttle, he eased my fears and provided me with the information that I needed to update my estate plan. He was very thorough and presented the issues in an understandable way that made the process actually positive.”

Kim S.