The Estate Tax in its current format with exclusion, adjustment for inflation, and spousal portability is more generous than it had been in past decades. Assets that fall within the exclusion have their cost basis reset tax-free to that at the time of death. That reset (step up) is not just valuable for tax purposes but also documentation purposes.
The Estate Tax recently lapsed for one year: beneficiaries during 2010 did not have to pay Estate Tax, but they also did not receive the cost basis reset. Instead those inherited assets retain their original cost basis, assuming it can be documented at all. Without documentation the IRS treats those assets as having a $0 cost basis. Someone inheriting grandpa's telephone company stock purchased 50 years ago has quite the research task ahead, unless when they sell they don't mind paying capital gains tax on the entire amount.
Since current discussions are considering making the 2010 approach permanent, if you wish to be kind to your beneficiaries you might want to clearly document cost basis of older assets, particularly ones purchased before brokerages officially tracked cost basis.
The Estate Tax recently lapsed for one year: beneficiaries during 2010 did not have to pay Estate Tax, but they also did not receive the cost basis reset. Instead those inherited assets retain their original cost basis, assuming it can be documented at all. Without documentation the IRS treats those assets as having a $0 cost basis. Someone inheriting grandpa's telephone company stock purchased 50 years ago has quite the research task ahead, unless when they sell they don't mind paying capital gains tax on the entire amount.
Since current discussions are considering making the 2010 approach permanent, if you wish to be kind to your beneficiaries you might want to clearly document cost basis of older assets, particularly ones purchased before brokerages officially tracked cost basis.
