The new law gives heirs of decedents dying in 2010 a choice of two estate tax rules to apply - 2010's or 2011's. That is important because although there is no estate tax in 2010, some inherited assets are subject to higher capital gains tax under the 2010 rules, a situation that actually raises the tax burden for some heirs.

Inherited assets under the 2010 rules will not receive the traditional step-up in basis to date-of- death value. Instead, a modified carryover basis system applies. The basis of property acquired will be the lesser of:

1) Decedent's adjusted basis increased up to $1.3 million on certain appreciated assets
    (not to exceed fair market value) or
2) The fair market value of the property at date of death.  

This could lead to a significant tax burden for heirs who sell assets, such as stocks, that have been held for many years and have greatly appreciated. By contrast, under the new 2011 rules, heirs will be allowed to inherit assets with a "stepped-up basis." While most heirs would choose the 2011 regime ($5 million  exemption from both estate and generation-skipping tax and an unlimited step-up in the basis of assets to their current market value), some heirs could find it more advantageous to elect the 2010 law.

The decision regarding which rules to apply may require careful consideration. We can assist you in this process.