Estate Planning | Closing Federal Loophole Can Ease Deficit

NJ Inheritance Tax 03

Last week I published two articles reflecting on Estate Planning in New Jersey. I discussed Inheritance Taxes and the Step-Up In Basis Rule. I would like to next comment on the status at the federal level.

On April 28th I watched President Joe Biden speak to Congress. I observed that he carefully tiptoed around a much-needed tax increase on corporations and those earning over $400,000.00. These tax increases would help pay for his costly programs and reduce the huge budget deficit.

Not much pain and still a lot of gain from doing nothing.

I couldn’t help but wonder why no one is suggesting the elimination of the step-up in basis rule. This would be a way for the government to painlessly raise billions of extra dollars. This move would tax the appreciation of inherited assets at such time as a beneficiary liquidates (i.e. cashes them in).

Mind you, the step-up in basis occurs with regard to all assets. That including those owned by billionaires such as Warren Buffett when he passes. Buffett and his spouse’s assets surely will exceed the exemption amounts and the assets will most likely be liable for an estate tax.

In all fairness, that is why perhaps his estate and his beneficiaries should not be subject to capital gains taxes on pre-death appreciation of his assets. That discrepancy can easily be adjusted by legislation.

In any case, the excuse which originally gave rise to the step-up-in-basis rule no longer applies. We can now track the price of all securities by the day, if not by the minute. These records are available on-line for all to see.

Capital gains taxes are simple to calculate regardless how long assets were held before someone passed away. Our brokerage statements reflect the date and amount for each purchase of every share. Any beneficiary can easily have access to a decedent’s financial account records by virtue of his or her appointment as executor or as estate administrator or even as a beneficiary of an estate.

The same can be said for other assets as records of real estate sales are available from recorded deeds, etc.

So why is it that this all-too-obvious “loophole” in our tax laws is allowed to persist so quietly? Does it remain under the radar to the detriment of our country’s fiscal security?

I am just a bit puzzled about it today, as I am about other anomalies.

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