Did You Know...? Estate Planning Facts for You and Your Clients.

• Author: Foss, Mary Kay
• Position: Client services

you may have heard some colleagues say the increased estate tax exemptions mean estate planning is no longer relevant. Or that only the top 1 percent or 2 percent of taxpayers need to plan their estates these days. Those assumptions are incorrect. Here's why.

What About 'Step Up in Basis?'

We've all heard this term, but what does it mean? The true meaning is that all of a decedent's assets are revalued as of the date of their death. We expect that everything will be worth more on the date of death than when they were purchased, so the cost basis will be increased to a new higher basis. If you consider the values in 2008 or some other times when the economy was not at its best, you'll realize that a reduction in cost basis is also possible. In fact, for some decedents, a potion of their assets may get the desired "step up" while others get a lower basis.

There are some techniques to maximize the basis step up that are not too complicated. If elderly mom changes the title on her checking account from her name to a joint account with her son, then has she made a gift? Not really, unless son withdraws money for himself. If he uses the account to pay for Mom's care or doesn't even know that his name is on the account (no check writing privileges, for example), it's not a gift until Mom dies. Now, extend the same example to a brokerage account or a piece of real estate and you can see that the increased value can be passed to the son without a lot of fees and paperwork.

That may not be the best-cast scenario, though. We no longer trust a potential heir to do the right thing, and there are other issues, such as multiple children in the family spouses with children from a previous relationship, ex-spouses, children with credit or addiction problems... the list goes on. Now estate planning techniques can step in.

What if daughter has been buying Apple stock monthly for 15 years? Could she give it to her elderly mother and then inherit it with a stepped-up basis when her mother dies? Yes, this will work as long as mother survives for a year after the gift. A trust can be used to shorten the holding period.

If an elderly individual leaves an interest in a real estate partnership to an heir, at death the value of the partnership interest likely will have increased. If the real estate is sold and the partnership liquidates in the same year, that heir will be able to apply the stepped-up basis in the partnership interest to the termination transaction...