Question 1

A wealthy client holds two assets: Asset A (Basis $100k, FMV $1M, high appreciation potential) and Asset B (Basis $900k, FMV $1M, low appreciation potential). The client is elderly and in poor health. Which strategy minimizes total transfer taxes (gift and estate) and income taxes for the heirs?

Accepted Answer

Compare the benefit of the §1014 step-up in basis. Asset A has $900k of unrealized gain; Asset B has $100k. Holding A until death eliminates the tax on $900k. Gifting B removes future appreciation from the estate with minimal loss of step-up benefit.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Focusing only on removing value from the estate without considering the income tax savings of the basis step-up.

A wealthy client holds two assets: Asset A (Basis $100k, FMV $1M, high appreciation potential) and Asset B (Basis $900k, FMV $1M, low appreciation potential). The client is elderly and in poor health. Which strategy minimizes total transfer taxes (gift and estate) and income taxes for the heirs?

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Full Answer

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