Attorney Urges Congress to Repeal Carryover Basis Rule

Attorney Urges Congress to Repeal Carryover Basis Rule

News story posted in Estate Planning on 1 March 2010| comments
audience: National Publication | last updated: 18 May 2011


In response to congressional inaction regarding the estate tax prior to the end of 2009, Conrad Teitell has written Senate Finance Committee leaders urging them to retroactively repeal another component of EGTRA, which imposes carryover basis rules on inheritances during 2010.

Full Text:

Subject: Estate Tax — First Bipartisan Step

Chairman Baucus and Ranking Member Grassley:

While there is a stalemate over the estate tax exemption and rates, I urge that now as a bipartisan act that the Congress repeal 2010's modified carryover basis rules retroactively to January 1, 2010.

More about this soon, but first some background.

At the Senate Finance Committee Estate Tax Revision hearing on November 14, 2007, I was the only estate-planning lawyer. The three other witnesses were a businessman from Iowa, a rancher from Nevada and an oracle from Omaha. They discussed whether or not there should be an estate tax and if so what the exemption and rate should be.

My charge as the estate-planning lawyer on the panel was to tell how I and my law firm have dealt and are dealing with the complexity of changing exemptions and rates since EGTRA’s enactment, estate-tax interruptus in 2010 (but with a gift tax and modified carryover basis) and the return of the estate tax in 2011 and beyond with a $1 million exemption and a 55% rate (60% for part of some larger estates). I told how we use formula clauses, disclaimers and contingency planning — and how complicated all this has become. Virtually every member of the Committee decried the complexity of the roller-coaster exemptions and the uncertainty it created for their constituents.

Current stalemate.

The Senate is now engaged in an estate-tax chess match with Red and Blue pieces (instead of the traditional Black and White ones). Unfortunately, your constituents are pawns in this game. You have already heard the hardships caused by the uncertainty of when the Congress will act, what it will enact and whether it will be retroactive.

Now for the Read and Blue Bipartisan Agreement on modified carryover basis.

Many of your constituents will have to pay capital gains taxes on their inheritances in 2010. This will punish those who transfer small businesses, farms, ranches and other assets.

Many assets will have to be sold — and a tax incurred — to assure that funds will be available to pay the estate tax if it is reinstated (whether retroactively or prospectively). Prudent Investor laws require sales in many cases to provide diversification of an estate’s assets.

Apart from the foregoing, most wills (not anticipating that Congress would fail to act) have given no instructions to executors on how to allocate assets to avail beneficiaries of the $1.3 million step up for all heirs and the additional $3 million step up for assets bequeathed to a surviving spouse. The law is unclear on the procedure to be followed if the assets pass under a living trust, intestacy or for a surviving joint owner.

It is highly likely that when the Congress finally acts on the estate tax, it will repeal carryover basis. Chairman Baucus has said that estate tax legislation would be retroactive. What that legislation will be — as far as the exemption and rates — I can’t guess. But again, it seems virtually certain that carryover basis will be repealed.

So why not repeal carryover basis now (retroactively to January 1, 2010) while the Red and the Blue continue their chess match over the exemption and the rates.

In my travels around the country, Americans are still cheering for the Red, White and Blue. Why not take a first bipartisan step and repeal carryover basis and give them some reason to once again cheer the Red and the Blue.

This letter represents my personal views and does not represent the official view of my law firm or any organization to which I belong. No client has engaged me to make these comments to you.


Conrad Teitell

cc: Jonathan Selib, Tiffany Smith, Theresa Patara

Conrad Teitell

Chairman, Charitable Planning Group

Cummings & Lockwood LLC

Six Landmark Square

Stamford, CT  06901

Phone: 203-351-4164

Right Fax: 203-708-3840

Admitted in NY and DC

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