Originally Posted by BobC
Short answer is......maybe.
Under current estate tax law, when a person passes, all of the items they leave to their heirs get what is called a stepped-up basis to the then current fair market value of the assets as of the day the person passes, or potentially at an alternative valuation date six months later. Initially on the surface, leaving the Mantle to his kids when he passes so they get a basis step-up and can then sell the card right away for virtually no gain would seem like a slam dunk way to save his kids the most taxes. But that only saves them the Long-Term Capital Gains (LTCG) tax on the sale of the card, which for federal income tax purposes is currently capped at 20%.
However, in doing so you are forgetting about the potential federal estate taxes that may be due on the card being left as part of the kid's inheritance. In return for getting the basis-step, it also means that same current fair market value the inherited assets are given is included as part of the deceased person's taxable estate. And current federal estate tax rates go as high as 40% once the taxable part of an estate reaches $1M, and higher. Every person has a lifetime estate and gift tax exemption that they get to offset against potential taxes due on gifts they make during their lifetime, or against the value of the estate they leave their heirs. This exemption amount under current law is at $12.06M, per person, for 2022. The vast majority of people in the U.S. don't leave estates worth that much, so they end up having no federal estate tax due, and their heirs get everything at a stepped-up basis so there is also virtually no tax due if they sell things right away after the person passed.
What we don't know is what else the person may have in their estate. If some, or even all, of that lifetime gift and estate tax exemption amount is used up by other thing's in the person's estate, or from gifts they had given away during their lifetime, that means some, or even all, of the then current fair market value of the Rosen Mantle card left to the deceased's children can be subject to the up to 40% federal estate tax rate. So in that case, the kids get a stepped-up basis and no 20% LTCG tax on selling the card, but the estate can get hit with a 40% estate tax on the card's fair market value. See the potential issue. And so you know, the current administration talked about reducing that lifetime estate and gift tax exemption amount down to around $3.5M to help fund the Build Back Better program, but it didn't go through. But still, unless something else is changed, the current estate/gift exemption amount is set to expire in 2025 as part of the tax law that passed when Trump was in office, and the lifetime exemption amount will likely go down by at least $5M-$6M. The adjustment is based on inflation, so the exact amount won't be known till 2025. In that case, knowing that lifetime exemption is scheduled to drop in 2025, unless the current owner expects to pass away before 2025, it may actually make more sense for him to gift the card to his kids before the exemption amount drops so that he at least takes advantage of passing on as much of his estate to the kids with no gift or estate tax as possible. Once that exemption amount drops, the potential tax savings from the lost exemption is gone. Plus, assuming the card will continue to increase in value over time, moving it on to his kids today can get all the future appreciation (and the potential resulting estate taxes) out of his estate. Yet he can still hold on to and enjoy the card since it is still in his family.
And I'm not even going to get into the additional implications of if he's married or not. For now, I really know nothing about the person selling the Rosen Mantle card, and would need to have virtually done an entire estate planning review and calculation before seriously trying, and being able to realistically answer, your question.
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