There is a lot of focus on alleviating the tax burden for individuals that are selling appreciated assets, but what about the tax burden for those individuals that don't sell?
There is a step up in basis of the property for the heirs upon the owner's death, resulting in no capital gain or depreciation recapture, but that's not the whole story. Estate taxes and settlement costs, especially for wealthy individuals, can significantly dilute the inheritance value and in many cases create a financial burden for the heirs, especially if assets need to be liquidated to cover the tax liability. And, if an asset is not easily marketable for sale, individuals could be left searching for other means to cover the costs.
Currently, the estate tax tops out around 50% not including additional settlement costs, all of which increase with larger estates. There is a current estate tax exemption of $2 million, increasing to $3.5 million in 2009 and unlimited in 2010 and revert back to $1 million in 2011. For many this exemption will not be sufficient. So what can people do? First, it's important to consult a qualified estate planning attorney to assess your needs and depending on your situation he/she may recommend a trust funded with life insurance, otherwise known as an Irrevocable Life Insurance Trust (ILIT), as a solution.
So to not make this section too long, I've written a sequel titled "Estate Taxes: ILIT as a Solution" and briefly describe the use and benefits of this great planning tool. www.crailhuntly.com
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