February 10, 2015

During the State of the Union address, Obama suggested a proposal to end the “step-up” provision for capital gains taxes. Although this would require the approval of Congress, there are major ramifications for estate planning if this were ever implemented. This kind of proposal would eradicate a big tax benefit linked to inheritances. 

While the current system allows for a step-up in basis for those assets passed on to others, Obama’s suggestion was to tax the capital gains for the decedent instead. In short, this would make it more complicated to protect assets from taxes. Insight from attorneys in the estate planning arena would become even more important for asset protection purposes. Although it’s just a suggestion at this time, the possible red tape and research required for this to work seems overwhelming. Just one illustration of the problems that would unfold has to do with tracing the original cost associated with every piece of property, stock, and valuable.

Bear in mind that if accepted, Obama’s plan does have some benefits in place for married couples. Couples would be eligible to pass on investment assets up to $200,000 without having to worry about capitals gains tax. If the couple wishes to pass on a home to one of their children, up to $500,000 can pass before triggering a capital gains taxable event. Even with these provisions to help, however, the step-up elimination would increase the financial burden felt by heirs.

Proposals regarding and changes to tax laws are complex. If you need help understanding the possible impact for your planning, contact an estate planning expert today at info@lawesq.net.