ESTATE PLANNING, PROBATE & ELDER LAW NEWS
I enjoyed Audrey Niffenegger's first novel, The Time Traveler's Wife. Haven't seen the movie -- looks a little too sappy -- but the book was great.
Right now I'm working on Ms. Niffenegger's newest, entitled Her Fearful Symmetry. I've just started it, but the novel appears to be a riff on the old idea of "stay in a haunted house overnight to get an inheritance." Two American twenty-somethings (twins) get the following letter (which I have edited) from the attorney for their English aunt, who has passed away:
Dear Julia and Valentina Poole,
I regret to inform you of the death of your aunt, Elspeth Alice Noblin.... Last September, knowing that her illness would soon result in her death, she made a new will. I am enclosing a copy of this document. You are her residuary legatees; that is, she has bequeathed you her entire estate, with the exception of a few minor bequests to friends and charities. You will receive this inheritance when you reach the age of twenty-one.
The bequest is given to you with the following conditions:
1) Ms. Noblin owned an apartment in London.... She bequeathed this apartment to you on the condition that you both live in it for one year before you may sell it.
2) The entire bequest is given on the condition that no part of it shall be used to benefit Ms. Noblin's [twin] sister, Edwina, or Edwina's husband, Jack (your parents). Also, Edwina and Jack Poole are forbidden to set foot in the flat or inspect its contents.
Sounds intriguing, doesn't it?
Led by Harvard, Ivy League endowments lost $27 billion last year.
Don't you want to know before you invest?
Up through 2009 (and starting again in 2011, assuming the law isn't changed), there was a federal estate tax. That was and will be the bad part, at least for people who owed or will owe tax.
The good part was that, in exchange for potentially being subject to the estate tax, you got a "step-up" in basis. Essentially, when an individual died, his or her assets took as their basis for capital gains purposes their fair market value as of the date of death. So, to consider an example,...
Mom buys a bunch of stock in Company X, starting in 1950 and continuing to her death. The actual cost basis for her purchases was $15,000.
Mom dies, and her Company X stock is work $500,000.
Mom's three kids are left the Company X stock under Mom's Will.
What is the basis in the Company X stock? During a year in which there's an estate tax, that's easy: it's $500,000. So, if the kids sell the stock after Mom's death, they pay capital gains on the difference between the sale price and $500,000.
But how is this handled in 2010? There are three main rules:
1. Instead of a step-up in basis, we have a carryover basis regime. So the basis in Company X would be $15,000. But...
2. There is still a step-up in basis for $1.3 million of assets passing to beneficiaries who aren't the decedent's spouse. And...
3. There is a step-up in basis for $3 million of assets passing to the decedent's spouse.
The major problem with a carryover basis regime is that, in many cases, it is difficult or impossible to calculate the decedent's basis in his or her property. (From what I have read, this was the problem when carryover basis was briefly made the law, back in 1976.) And I worry that the biggest result of this change in the law will be full employment for America's forensic accountants.
