Estate-Tax-Basis Form Still Not Available

Estate-Tax-Basis Form Still Not Available

Arden Dale at the Wall Street Journal’s Financial Advisor blog:

A Florida resident in her seventies lost her husband in early 2010. The couple had $8 million, but how much will remain after taxes is still a mystery.

The key IRS form has yet to appear since last year’s estate tax law changes.

Those changes have created a “practically unsolvable conundrum,” said Renee Kwok, president of TFC Financial Management in Boston, which manages roughly $600 million in assets. The firm handled all of the estate for the widow.

Lawmakers gave 2010 estates a one-time choice to pay the federal estate tax or not. The trade off: opting out means heirs may owe a bigger capital gains bill when they sell stocks, property or other parts of the inheritance.

However, the IRS hasn’t produced the “cost-basis” form–required to help estimate future capital gains on the estate–which makes it difficult to project possible capital gains.

The word is that the agency will publish the form this fall, according to Don R. Weigandt, managing director, wealth advisory, with J.P. Morgan Chase & Co.’s private bank in Los Angeles. For now, the best approach is collaborate with tax experts to project possibilities.

Some advisers have created formal teams with tax attorneys and certified public accountants, ensuring that the client wants to “defer to all of us collectively,” said Kwok, who teamed with Robert Keebler, a CPA in Green Bay, Wis., to help the widow.

While a CPA can estimate the cost basis for something in the estate — say, a group of stocks — an adviser can better say which stocks to sell first, and the order of sales will affect the tax.

Kwok’s team told the client she had to put off a decision on the estate tax in 2010 while Congress debated the future of the tax. The group analyzed how various income and estate tax rates could affect her cash flow. The woman decided not to sell her taxable assets for the time being, and the team ultimately advised her to opt out of the estate tax. Only time will tell, said Kwok.

Keebler said he wouldn’t want to work on an estate tax return for a 2010 estate without speaking to a client’s adviser, “just to make sure I don’t mess it up.”