Key Federal Estate Tax Issues in Elder Law

Numerous blogs have referred to the fact that knowledge of federal estate tax is necessary for an Elder Law attorney.

I thought it would be helpful at this point to review some of these issues. Major considerations would be the following:

1. If property is transferred with a retained life estate, the property gets a step-up in basis under Section 36.
2. If property is gifted, the transferee gets a carryover basis.
3. The basis of any property is increased by capital improvements such as roofing and improvements for a disabled relative.
4. Cost of maintenance and upkeep after date of death are not deductible.
5. Cost of preparation of property for sale and the cost of sale (such as attorney's fees and broker's commissions) are deductible as administration expenses.
6. Any debt of decedent regardless of its nature, is deductible under Section 2053. Other administration costs that are deductible are costs of sale of any type (such as an auction to sell personal property and commissions to sell stock).
7. For federal estate tax purposes, life insurance over which decedent had any form of ownership and life insurance payable to the estate (including certain items such as post- mortem dividends and post-mortem interest) are includable. However, for New Jersey inheritance tax purposes, life insurance to a named beneficiary is not taxable except for limited items.
8. Other typical administration costs are costs of burial, including the cost of the administrator to travel to administer the estate. However, costs of a beneficiary, are not deductible.
9. Costs of the executor, such as litigation relating to the elective share, are also deductible. However, costs of a beneficiary in seeking elective share are not deductible. An argument can be made that costs of a beneficiary in this case should be deductible as all costs are necessary to resolve the administration of the estate.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2011, Post 159