No Death Tax in 2010 Could Hurt Middle Class!

By now most people have heard that the best year to die is 2010!  Why?  No federal death tax (so far).  Sounds great, right?  It depends.  If your estate is over 3.5 million dollars, then you may have hit the jackpot.  If not, 2010 could be a nightmare.  Why?  Because with the repeal of the death tax comes new tax rules targeting the middle class who wouldn't have had to pay anything had Congress left the death tax alone.  The target is appreciated assets.  In prior years, those who inherited appreciated assets like stocks or property, received a stepped-up basis to the fair market value date of death.  In other words, when your grandchildren sell the IBM stock you leave them in your will, they would only pay capital gains tax on the appreciation from the date you died until the date they sold the stock.  They would not pay tax on the difference between the sale price and your original purchase price.  But, these favorable basis rules changed for 2010 so your heirs will no longer get a full step-up in basis on appreciated assets.  This means your heirs will get hit with a much larger tax bill then they would have had you died in 2009!   Moreover, Congress is still talking about changing the rules back to the old rules at some point in 2010.  So what will happen if you die between January 1, 2010 and the time Congress goes back to the old rules?  We'll wait and see.  And what about all the people who have clauses in their wills or trusts that link distributions to the federal estate tax?  Who will get what if there is no federal estate tax?  These answers will be decided by the courts--which means many families like your could end up in protracted legal battles pitting siblings against each other for years after you're gone.  The financial and emotional costs of battling it out in court will be devastating.  The bottom line--2010 can be your worst nightmare or, with competent estate planning, your family could be protected.  Will your family get the shock of their lives after your gone?   The way it stands now, they will and the middle class will pay dearly.