Basis Rules For Assets Transferred At Death During the Time Of No Estate Tax
RULE: under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA-2001), for decedents dying in 2010, the step-up in basis is eliminated. Therefore, basis of property acquired from a decedent will usually be the lesser of decedent’s adjusted basis OR FMV of the property at the date of death.
EXCEPTION: IRC Sec. 1022 provides for certain increases to the basis of assets acquired from a decedent after 2010. These increases cannot cause the basis of an asset to exceed the asset’s FMV at the time of decedent’s death. These increases are:
- Aggregate Basis Increase: the basis of property in a decedent’s estate is entitled to an aggregate increase of $1.3 million.
- § In a case of a non-resident alien, this basis increase is limited to $60,000
- § The amount in a. is increased by “built in loss” adjustment – inclusion of capital, net, and other losses.
- Spousal Basis Increase: an additional basis increase of $3 million is available for property passed to the surviving spouse “outright” or as a qualified terminable interest property (QTIP).
- § Qualifying interest for life exists if the surviving spouse is entitled to all income for life, and nobody but the surviving spouse has the power to appoint any property to anyone other than the surviving spouse.
- § Results:
- QTIP trust – eligible for basis increase
- Marital deduction estate trust – not eligible
- Property passing to a typical survivor’s trust – probably not eligible (especially if the trust permits distributions to persons other than the surviving spouse during the survivor’s lifetime).