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Tax Loophole for Inheritances Closed


The lower the overall value of an estate, the less estate tax is due. If the estate is valued at less than $5.43 million in 2015 (and $5.45 million in 2016), no estate tax is due. What this has always meant for executors and their attorneys is that assets difficult to value in an estate should be given as low a value as reasonable.

For example, a rare baseball card collection could be appraised at its lowest fair market value so the collection has as little estate tax impact as possible. The people who inherit the property in the estate have a different concern. They receive the property with a stepped-up basis and if they sell the property later will have to pay capital gains tax on any appreciated value from the time they received it to when it was sold. Thus, they want the initial value of the property to be as high as possible.

In the past, both executors and inheritors could get their way and report different values to the IRS. However, as it was believed this was costing the government $1.5 billion a year, the loophole has been closed as reported by Forbes in an article entitled "Congress Cracks Down On Inheritors' Tax Loophole."

People who inherit property will now be stuck with the value executors place on it or face stiff tax penalties.

This makes it more important than ever that executors and inheritors consult with estate attorneys when valuing estate property. It is important to come up with the best valuation for all concerned as there is no changing the value later.

Reference: Forbes (Dec. 16, 2015) "Congress Cracks Down On Inheritors' Tax Loophole."

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