Klenk Law

What’s the “Angel of Death” Tax Loophole and Why Should You Care?

Posted on Thu Jan 22, 2015, on Estate Planning

From our “Ask a Question” Mailbag: What is the Angel of Death Tax Loophole?

Most Recently Updated July 8, 2018.

“What is the “Angel of Death” Tax Loophole?”

What is the Angel of Death Tax Loophole

In 2015, President Obama’s State of the Union Address was a throwback in some aspects. Specifically, Obama’s proposal included removing a veteran staple in the estate planning attorney’s playbook, the so-called “Angel of Death” tax loophole. Let’s take a look at exactly what the “Angel of Death” tax loophole is, and why you should care about it.

What is the Angel of Death Tax Loophole?

Even though President John F. Kennedy asked Congress to repeal the loophole 52 years ago, it remains perhaps the largest capital gains loopholes in the US Tax Code. The Angel of Death tax loophole allows individuals to inherit appreciated capital gains assets with a step-up in basis. A simple example will make the loophole clear.

Example

Let’s imagine your father (the smart man he is) bought $10,000 worth of Apple stock in 1990. If he sold that today, it would be worth approximately $1,200,000 and he would have to pay capital gains tax on $1,190,000. Multiply that by the highest marginal capital gains rate of 23.8% and that equals a tax payment of $238,220.

What if there was a way to avoid that tax?

That is precisely what the Angel of Death loophole does. If instead of selling the stock, your father bequeaths it to you, the stock would be inherited by you with a stepped-up basis (usually the fair market value on the date of his death) and the increase of value from $10,000 to $1.2 million is gone — never subject to capital gains tax!!

You can understand why the U.S. Treasury estimates this loophole costs the US $50 billion per year in revenue. With the baby boomers set to begin the largest generational wealth transfer in history, closing the loophole is an increasingly attractive source of revenue. Coupling that with the proposed increase in the highest marginal capital gains tax rate from 23.8% to 28% would make it even more attractive.

Why should you care?

Simply put, in our one example, your father died today versus after the proposed changes would account for $333,200 less to your family upon his death. Further, the capital gains tax applies to other assets besides stocks which can include real estate, appreciated property such as cars, certain business interests, etc.

Father Sells Now

Fair Market Value ($1,200,000) – Basis ($10,000) = Taxable Gain ($1,190,000)
Taxable Gain ($1,190,000) x Current Taxable Rate (23.8%) = Tax Owed ($238,220)
Taxable Gain ($1,190,000) x Proposed Taxable Rate (28%) = Tax Owed ($333,200)

Father Dies with Angel of Death Loophole

Fair Market Value ($1,200,000) – Stepped Up Basis ($1,200,000) = Taxable Gain ($0)

If you are concerned about your untaxed capital gains and the most effective ways to transfer wealth to your heirs, contact our experienced New Jersey, Pennsylvania, New York, Florida and Minnesota Estate Planning Attorneys for a free consultation.

More Planning Questions?

The Angel of Death Tax Loophole is only a piece of the Estate Planning process. By all means, if you want to learn more, please read my more detailed article, Estate Planning Everything You Need to Know.

In Conclusion: What is the Angel of Death Tax Loophole

I hope that this article was helpful in explaining the Angel of Death Tax Loophole. Further, I included links to even more detailed information on my website so you can learn more. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Estate Planning lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced estate planning lawyers.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

Wills, Trusts, Probate, and Estate Litigation, It’s All We Do!

 

Tags:

Death taxes, Estate Planning, Estate Planning Attorney, Estate Planning Lawyer, Florida, New Jersey, New York, Pennsylvania

What Our clients are saying

Stars

Peter provided outstanding advice and preparation of a will and trusts.

Stars

Peter was excellent. He explained everything very clearly and is super friendly. My wife and I originally tried using a lawyer through group legal coverage, but unfortunately the old adage - "you get what you pay for" - applied to the other lawyer, and we decided to go with a real professional.

Stars

When it came down to picking the right attorney to handle my affairs, I knew right away it was this firm. From speaking to their secretary to speaking to Peter I knew I was making the right decision. After only a few mins Peter knew right away what I was looking for and handled all my questions professionally and even gave me great feedback that put my mind at ease. All that without even giving a single penny! So of course I hired him! So far so good...

Stars

AWESOME LAWYER! Peter Klenk is an exceptional attorney and a very nice person! Today I spoke with Peter about estate planning and was impressed with by his professionalism, cordiality, and attention to detail. I highly recommend Klenk Law for probates, wills, trusts, and other issues germane to estate planning!

Stars

Great friendly staff

Stars

Tremendous firm with bright, kind and tenacious people. Great representation for our family.

Stars

I'm totally satisfied with Klenk Law. Peter has a great legal mind with the personality of the guy next door.

Stars

Everything about my experience was a 10+! Peter and his staff made what I thought would be a difficult process easy and understandable. Every detail was handled correctly. No other firm could possibly do better than Klenk Law!

Stars

Peter and his staff are very responsive and always willing to help my clients and in a cost efficient manner.

Stars

Like another reviewer, I contacted Peter through his website using the free consultation link, for a question regarding PA inheritance taxes. The question was quite technical and difficult to explain, and the answer was nowhere to be found on the web. Peter grasped precisely what I was asking, and provided a clear, helpful response (with a touch of humor) the very next day.

Stars

Answered my question quickly and referred me to a colleague that could handle my problem

Stars

Mr. Klenk, quickly understood the circumstances presented and provided clear and concise advice. This advice provided me with the information I required to progress the case to my advantage.

Stars

Peter is excellent. I had a very complicated situation with my parents' estate planning and potential Medicaid needs. Peter was very knowledgeable in estate planning matters, able to define the best solution for the situation. Additionally, he was congenial and able to communicate effectively to my senior citizen parents the benefits of estate planning. He earned my trust, and more importantly, my parents' trust in a 45 mins consultation period. Highly recommend Peter. He is very easy to work with.

Stars

Peter recently gave a presentation about Wills & Trusts at my employer, and it was fantastic! He was extremely knowledgeable and provided valuable information to the group. People were very engaged and asked several questions, all of which Peter thoroughly answered. Personally, my husband and I have selected Peter to help us with our estate planning, and he has been very helpful in providing us with all of the information we need to provide a secure future for our family. Thank you, Peter!

Stars

Peter provided outstanding advice and preparation of a will and trusts.

Stars

Peter explained things in a way that was easy to understand. Everything was done in the time frame he said it. Could not have been better!

Stars

You & your staff are the best thank you for everything.

Stars

Peter and his staff handled all of our needs in a very professional and timely matter.

Stars

Peter Klenk made a complex subject understandable and allowed us to move forward with our estate planning. He was patient with our questions and creative in the solutions he proposed.

Stars

Peter explained a complex subject very clearly, helped us to decide the best approach to managing our estate and then made it very easy for us to execute the required documents. He will be a valuable resource for years to come and clearly has a great understanding of estate law that will lead to innovative solutions for us. I would unhesitatingly recommend him for estate planning.

Stars

Fantastic customer service. Very personable and most importantly they provide great explanations of what is required based on your individual needs. Highly recommend Klenk Law for anyone that needs to create a will and estate documents.

Stars

Always professional and very responsive. Everyone on the staff that I have worked with. I look forward to continuing our relationship.

Stars

Surprisingly easy

Stars

Affable...yet surprisingly cerebral estate planning atty. High marks all the way around.

Stars

Peter and his associates made things easy for us.

Let us put our expertise to work for you.

Free consultation within 24 hours.