MAXIMIZING AND MULTIPLYING THE “STEP-UP” IN BASIS
As discussed in previous posts, estate planning will increasingly focus on the income tax savings resulting from the “step-up” in basis. Estate planners will seek to maximizing the “step-up” up in basis by ensuring that the assets that are includible in the estate of a decedent are the type of assets that will:
- Benefit from a “step-up” (avoiding the inclusion cash or property that has a basis greater than fair market value)
- Benefit the most from the “step-up” (for example, very low basis assets, collectibles, and “negative basis” assets); and
- Provide significant income tax benefits to the beneficiaries (assets are likely to be sold in a taxable transaction after “step-up” or depreciable/depletable assets giving rise to ongoing income tax deductions).
In addition to the foregoing, estate planners will increasingly seek to:
Maximize the value of certain assets because the step-up” in basis is based on fair market value (rather than trying to reduce the value for transfer tax purposes); and
Intentionally create estate tax inclusion, especially if the decedent lives in a state with no state death tax and if the decedent has significant unused Available Exclusion Amount above his or her assets.