“One benefit of a transfer triggered by death is the step-up in basis: Assets transferred by death generally pass to the new owner with a basis equal to the date of death value,” said Patrick Hicks, legal counsel at the estate planning consultancy Trust & Will in San Diego. “This effectively eliminates the recognition of capital gains.
“The estate tax and income tax interplay actually create massive opportunities for highly appreciated assets to bypass income taxation,” Hicks added.
“Under current law, assets that are outside of retirement plans get a step-up or step-down in basis,” Levi said. “This generally results in the elimination of significant tax on capital gains that would otherwise be due when assets are sold or redeployed after death. This provision is on the chopping block of many pieces of possible tax legislation proposed over the last several years.”
Encourage wealthy parents or grandparents to begin gifting the annual maximum amount, currently $16,000, to their heirs to reduce their taxable estate, Primeau added.
Don’t let the mania of wealth transfer influence motives. “Know your goals,” Hicks said. “Pass wealth to your children? Start a charitable foundation? Support an existing charity? Or live lavishly with nothing left behind?”