By: Martin M. Shenkman, CPA, MBA, JD
Thus, the option for estates of those who died in 2010 is for the executor (personal administrator) to choose whether to accept the new default rule that the estate will be subject to the TRA modified estate tax with a $5 million exemption and a full income tax basis step-up (increase) as well. This is a rather costly retroactive tax benefit for the government to provide. It will, however, provide considerable simplification for many 2010 estates. It will enable practitioners to address compliance issues with a known body of law if the estate can safely select to be subject to the estate tax instead of the complex and daunting carryover basis rules. The mechanism the 2010 TRA uses to accomplish the above is to provide that its provisions applying the estate tax are generally effective as of January 1, 2010. TRA then provides executors the option to choose which to apply, the carryover basis tax paradigm instead of the estate tax. The carryover basis is thus an option that an executor can select instead of the estate tax approach. The actual language that the 2010 TRA uses to implement this election system is rather difficult to understand (with double and triple negatives). This is sometimes referred to as carryover basis or COB. See Form 8939 and other materials on this website.
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