Executors of estates of decedents who died in 2010 face a tough choice under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Tax Act). Should they elect to subject the estate to federal estate tax liability and get a step-up in basis of the assets or opt out of the estate tax into a modified carryover basis? (For more information on this election, see “The 2010 Tax Act Election,” by Michael J. Jones in our April 2011 issue, p. 18.)
Although there are some basic guidelines to follow when advising clients about this choice, each situation is different — much depends on the specific facts and circumstances of the client and the estate you're advising. To help you sort through the various possibilities, we've asked our experts who have faced this decision head-on with their clients to share their experiences with you.
To give you a basic overview of the key considerations, we start off with “Look Before You Leap” — three different takes on the general guidelines you should always keep in mind when speaking to clients about the election. We then move on to “In or Out?” which delves into specific client stories based on our experts' real life experiences. Among other things, these narratives highlight the importance of doing a thorough analysis before making any distributions, balancing the needs of the surviving spouse with other beneficiaries, addressing the difficult decisions that accompany opting out (including the need to fairly allocate basis) and figuring out how to deal with the unexpected consequences of formula clauses.
We hope these “war stories” give you some insights into how to handle this very delicate balancing act and that you enjoy reading them as much as we've enjoyed compiling them. Special thanks to Michael J. Jones and Natalie B. Choate for their help and guidance with this endeavor.