Liz Weston: Worry about the right thing with estate taxes

Death and taxes may be the only certainties in life, but death taxes are only a remote possibility for most people. The vast majority of Americans won’t ever have or give away enough to owe estate or gift taxes.

Far more people could be affected if a tax break that benefits heirs is eliminated. While campaigning for president, Joe Biden proposed doing away with something called the “step-up in basis” that allows people to minimize or avoid capital gains taxes on inherited assets. But no legislation has been proposed yet, and such a change could have a tough time getting approved by a divided Congress.

“Right now, we’re telling folks to start thinking about this stuff, but we’re not rushing out to take action,” says certified financial planner Colleen Carcone, a director of wealth planning strategies at TIAA.

HOW STEP-UP IN BASIS LOWERS TAXES

Although most estates don’t owe estate taxes, anyone who’s inherited a house, stock or other property has likely benefited from the step-up tax break that gives such assets a new value at the owner’s death.

Say your savvy aunt paid $7,000 for a single share of Berkshire Hathaway stock in 1990. That’s her tax basis. If she sold the stock for its closing price of $362,000 on Feb. 10, she would owe tax on the $355,000 gain. If she generously gave you the stock and you sold it on Feb. 10, you’d owe the same amount of tax because you’d also get her tax basis.

Now, let’s say that instead of giving you the stock, she left it to you in her will and she died Feb. 10. The stock would get a new basis for tax purposes of $362,000. All the gain that occured during her lifetime would never be taxed. If you sold the stock later, you would owe tax only on the gain since her death.

Some kinds of inheritances, such as...