August 2015

President Obama’s 2016 budget proposal contains a number of tax increases, not the least of which is to make death a taxable event. Obama’s proposal would impose a capital gains tax on the appreciation in value of assets held by the decedent at the time of death. The tax would be reported on the decedent’s final income tax return.

Under current law, which has been in place for decades, when an appreciated asset is held by a decedent at death, the heirs receive a “stepped-up” tax basis in that asset equal to its fair market value as of the date of death. As a result of the step-up, appreciation that accrued during the decedent’s life is never subjected to the capital gains tax. President Obama calls this the “trust fund loophole”, though it has nothing to do with trust funds. What he means, of course, is that the stepped-up basis provision primarily benefits the wealthy.

The proposed new tax would apply to any appreciation that accrued to the decedent’s assets during his or her lifetime. Ascertaining the decedent’s adjusted tax basis in assets that he or she has owned for many years will be no easy task. More importantly, the tax burden is substantial, and could easily decimate family-owned businesses. The current capital gain rate is 23.8%, and the President’s budget proposal would increase it to 28%.

To make matters worse, the proposal would also change the long-standing rule on gifts of appreciated property. Under current law, when a donor makes a gift of appreciated property, the recipient takes the donor’s tax basis in the asset. But, there is no recognition of taxable gain until the recipient subsequently sells the asset in the future. Under President Obama’s proposal, the donor would owe a capital gains tax on any appreciated value in the year in which the gift is made.

The good news is that with a Republican controlled Congress, the President’s tax proposals are probably dead on arrival.

For more information about the President’s 2016 budget proposal, go to https://www.whitehouse.gov/omb/budget.

What Is The Estate Tax?
The estate tax is one component of the federal transfer tax system, which also includes the gift tax and the generation-skipping transfer tax.
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The Trust As Part Of An Estate Plan
To the layperson, trusts can appear complicated. People often think trusts are only for the very wealthy. In reality, trusts can be useful for people of all income levels.
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What Is Probate?
Probate is the legal process that takes place after someone dies of proving the validity of a will or establishing who is entitled to receive the decedent’s property under state intestate succession laws if there is no will.
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Who Are The Parties Involved In A Trust?
The person who creates a trust is called the creator, the settlor, or the grantor. The trustee is the person or persons who hold title to the trust property in their name.
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Lawrence Israeloff, Esq., CPA, CFP®

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