When the President of the United States makes a speech, many people tend to listen. Many of those in Maryland interested in planning for estate administration may have paid closer attention to his recent State of the Union Address. The President's proposed plan may make it more difficult for many looking to create an estate plan.
The President's plan would dramatically change the capital gains tax policy in the United States. It would eliminate how inheritances are treated for tax purposes. The proposed tax scheme would tax capital gains based upon the decedent's cost basis. This would result in many beneficiaries paying significantly higher taxes on inheritances.
Currently, the system allows use of a step-up in cost basis for inheritances. This means if the decedent had purchased some stocks for $500 and the stock appreciates to $2,500, when the stocks are left to beneficiaries they are only taxed on appreciation over $2,500. However, if the proposed tax scheme passes into law, beneficiaries would be taxed on capital gains above the original $500 initially paid for the assets.
So far, many analysts believe that there is low probability that the proposed plan will ultimately become law. However, it may signal attitudes of lawmakers toward the possibility of changing the estate administration tax laws in the future. Maryland residents may want to keep an eye on the latest developments in order to be ready to make any necessary changes to an existing estate plan. Keeping up to date on the latest changes in law may save beneficiaries significant tax liabilities.
Source: wealthmanagement.com, "Is the "Step-Up" Stepping Down?", Jason Smolen, Feb. 4, 2015