Tax Deceased Estate

Question: Should we sell now or wait for it to be part of the estate?

My family has 18 acres of pasture land in Louisiana. My Dad who will be 80 this year and is in poor health is thinking of selling it. We have been renting it out a few weeks every year for a municipal event. It has been in my deceased mother’s family since before 1920 so the question is if we were to sell it now would we have to pay capital gains based on the price it sold for back before 1920 or should we wait and let it become part of the estate and pay estate taxes based on the appraised value or would it be the same? He doesn’t need the money; we just won’t be going back down there since my relatives have all passed away in the last 10 years.

Answer: If you sell it now, you will pay capital gains. If you wait until it’s in his estate and the estate sells it, you may not pay any estate tax at all, depending on the value of the estate as a whole — currently, an estate tax exemption applies to estates with a value of up to $2 million; and in 2009 this increases to $3.5 million; and then in 2010 the estate tax is “repealed” altogether. (See Smart Money link below.) I say “repealed” in quotes because in 2011, the law sunsets and estate tax rates go back to what they were when the law changed (I believe that was 2001). So if the estate is opened between now and 2010, you may not pay estate tax at all. And of course, Congress could extend the law between now and 2011. So, there is some uncertainty involved.

The above addresses federal taxes. You’d also have to check to see if your state levies an estate tax, some states do.

But one thought — with the uncertainty above, you might consider having your dad put the land in a trust. This could be used to avoid estate taxes AND avoid the probate process. The trust beneficiaries would receive the property at his death with a “step up in basis” — meaning if they turned around and sold it after he died, their gain would be based on the land’s value at the time of his death and NOT its value in 1920. (See paytaxeslater.com link below.) In fact, if your dad hasn’t already done so, he might consider this approach for all or most of his assets.

You should run this by an experienced estate and trust atty where you live, with some planning now you might save some taxes.

Changes to estate tax stir up debate

The North Platte Telegraph If you’re reading this, it means your children, spouse or whomever you’ve left in your will loves you more than money. If they didn’t, you might be dead. Financially, it would be in their best interest.

Estate Planning : Do You Have to File an Income Tax Return After Someone Dies?