@notrichenough , I hadn’t given much thought at all to step-up basis between spouses until a friend pointed it out. The treatment is also different in community vs. non-community property states. Also, when conveying appreciated property from single ownership to joint ownership, it has to take place more than a year before death to get the step-up basis.
Publication 551 addresses the Step-up Basis for CP:
The statutory provision that addresses the required 1-year holding period is:
IRC §1014(e): Appreciated property acquired by decedent by gift within 1 year of death
(1) In general, in the case of a decedent dying after December 31, 1981, if—
(A) appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent’s death, and
(B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor),
the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.
Check to see if ownership in non-community states has the same treatment. (I think it should apply because it’s the Tax Code, but the percentage may be different.) Hey, I thought you are the tax guru!
The main difference is that in community states, each spouse is deemed to already own 1/2 unless, of course, the property is separately titled because of other considerations.
We have an estate plan with A/B trusts and what-not set up, but the lawyer said we didn’t have to re-title anything at this point, and at this point I’ve forgotten exactly how it will work. That’s what my lawyer is for.
At the federal level, we are unlikely to have enough to matter (at the current exemption level) unless we have a long stretch of high RE inflation. MA has an estate tax with a $1mil exemption for each, which is where the trusts might help a bit.
All I know about non-TX estate planning (i.e., for states with estate taxes) is that if your trust structure is set up pre-2012, then just have it doubled checked. Paying estate tax is still less preferable than paying CG tax at present rates, so (I’m going into iffy territory for me) giving up the second step-up at the death of the second spouse may not be as big a concern.
You are correct. Each person’s spending strategy requires a eye towards management of taxes and taxation of SS. My scenario assumes that our SS benefits will be taxed. And H and I presently have exactly $0 in Roth IRAs. But, if you have existing Roth IRAs going into retirement, electing to withdraw from them instead of from Taxable Account will definitely aid you in managing your taxable income and the taxation of your SS. That is, unless you prefer to leave the Roths to your lucky beneficiary(ies).
“3) Determine SS claiming strategy but most likely defer until 70 to maximize benefits.”
Funny you mention that. We don’t have big pensions (just one small one, one retirement account that could be drawn as monthly payments or cash) Much of our retirement will be financed from 401k (tax deferred) accounts. The high expenses of our “early years” (pre-65 medical coverage, more travel) are a concerns. We have not ruled out doing SS at 65 or even earlier, if needed. When we know more of the variables we will do closer analysis.
Obviously, whether to claim at Full Retirement Age (FRA) or earlier or to delay to 70 to maximize is an individual decision. FWIW, almost everything I have read points to delaying past FRA to 70 IF one’s projected health and life expectancy warrants it and one has resources to get one from FRA to 70 because of (and I’m going off the top of my head here):
(1) the guaranteed 8% increase in SS benefits for each year one delays past FRA
(2) the fact that benefits for the surviving spouse are determined by the higher-earning spouse’s benefits
Here’s one argument in favor of tapping the 401k and delaying SS benefits due to tax considerations:
Delaying ss to 70 is not really an 8% increase because you need to consider the money you would have earned on the ss income taken earlier. Plus if you need to draw down other accounts to make it to 70 that needs to be considered also.
From what I read, about 30% take SS at 62, and 30% at 70, the rest in between age was about 8%. So 8% at 63, 8% at 64, and 8%. Roughly not exactly, going by memory so the number doesn’t quite add up to 100%.
The numbers I saw said less than 10% wait until after FRA of 66.
Most people commenting on that article (the one AttorneyMother linked to) were against delaying the benefit, for two main reasons:
benefits will be severely cut at some point so you should connect while there is still something to collect; or
use the govt's money before you spend your own. If you wait until 70 there's a good chance you will die before collecting a penny, so why use up your kids' inheritance?
My father died at 66, so this resonates a little bit. DW is likely to live into her 90’s, which will trump this, I think.
Does anyone have a good, dumbed down for those of us who think this stuff is written in Greek, article on the file/deger if the wife is older than the H and the wife is 62 but the spouse is not?
