Quote:
Originally Posted by Casey2296
Wouldn’t one get an appraised value at time of death on the assets in order to establish a new cost basis?
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You would normally think so, but what I haven't really addressed and mentioned directly yet is that in regard to filing a federal estate tax return, every single U.S. taxpayer has a lifetime estate and gift tax exemption they get to use. What this means is that when a person passes on, whoever is in charge and responsible for the handling of the deceased's estate, they are charged with figuring the current net FMV of the estate. (You do get to deduct some expenses and outstanding debts, so it is a net estate value you get to use for federal estate tax purposes.) Then once you've calculated the decedent's net taxable estate value, you compare that net taxable estate value to the lifetime estate tax exemption amount they have available, and if the available exemption amounts exceeds the net taxable value of the estate, there is no federal estate tax due, and technically no federal estate tax return has to be filed.
Currently for 2022, the lifetime federal estate and gift tax exemption each person has in $12.06M. So if a person passing away this year only has say about $1M-$2M in net FMV of assets owned, including this one particular baseball card supposedly worth $50K, the executor/fiduciary of that decedent's estate knows they are nowhere close to ever being required to file a federal estate tax return for the deceased. So why would they ever bother going through all the time, effort, expense and so on to get all the decedent's assets formally appraised and valued. They really don't need it file anything.
So in that case, the heir who inherited the card probably can't count on the estate's executor/fiduciary having done any appraisal or valuation leg work, and will have to proceed on their own to come up with what the value should be to use for the card's "stepped-up" tax basis on their personal federal tax return. And also figure out how to document that value on their own to satisfy the IRS, should they ever come knocking and asking questions. And that is also why in the original post I made about this topic, I suggested the OP check with the estate's executor/fiduciary anyway to see what, if any, formal or informal appraisal/valuation work they may have done. And to then make sure what the OP ended up using for the card's "stepped-up" tax basis agreed to what the fiduciary/executor of the decedent's estate had come up with. That way should the IRS ever come back IRS ever come back on the heir/OP, they couldn't also go back to the estate and catch the OP/heir using inconsistent FMVs.
And FYI, that lifetime estate and gift tax exemption amount, at $12.06M under current law, changes annually each year due to inflation, and goes up slightly. However, if a person chooses to give gifts in any year that exceed the annual federal gift tax exclusion amount (currently at $16,000 per person for 2022), any excess annual gift to a single person over that $16K amount gets deducted from that person giving the gift's lifetime estate and gift tax exclusion exemption amount. So that gets deducted from what they then get to pass on to their heirs free from estate taxes when they die. In simple English, and using the OP's scenario as an example. If instead of inheriting the $50K card, the person gifted it to the OP this year, and then passed away later on before the year-end. In that case, the $50K gift exceeded the 2022 annual gift tax exclusion amount of $16K by $34K. So the gift isn't taxable to the person giving it, but they have to file a federal gift tax return (Form 706) for 2022, and the $34K excess gift gets deducted from their lifetime estate and gift tax exemption amount and reduces it to $12.026M ($12.06M - $34K). So whoever ends up handling that person's estate, after they pass away later this year, now only has $12.026 of the lifetime estate exemption left they can use to offset against the estate's net taxable value to determine if they even have to file a federal estate tax return, and pay and federal estate taxes due.
The kicker is that the government can change that lifetime estate and gift tax exemption amount whenever they want, if they can get enough votes. As it is, come 2025, that lifetime exemption amount will likely drop by $5M-$6M as part of the sunset provisions of the 2017 Tax Cuts and Jobs Act, along with a lot of the other tax laws and changes passed as part of that act from 2017. That will be a dramatic change that could end up affecting a lot more people's estates in the not too distant future. And the current government administration had already talked about making changes to various aspects of the federal estate laws, such as doing away with the "stepped-up" basis rule for inherited assets, dropping the lifetime estate and gift exemption amount even further, and so on. They haven't gone forward and changed anything....yet, but that could change at anytime. So you have to stay aware of changes to these rules and laws if you have a sizeable estate. Remember this for context, when Hillary was running against Trump, one of her key tax proposal points she kept pushing was to drop that lifetime estate and gift tax exemption amount down to $1M per person. Think about that. Add up the value of your house, 401K, some other savings and assets, and then toss your collection on top of that, and how many of you now may be having to think about owing federal estate taxes after all. A millionaire today is nothing like what one was back when I was a kid
When it comes to thinking about how our collections may impact our families and our estates, it isn't something you necessarily can just do some simple research on, and then set it and forget it. You have to be aware of potential and constant changes to tax and estate laws, as well as changing values to what we have. Ask questions and have some trusted source(s) to got to for help and answers.
I think I have everything pretty much covered now. LOL