After all the headaches and hair-pulling, after all the editorial space devoted to the subject and after the last-minute, edge-of-your-seat passage of the 2011 estate tax law, we all breathed a sigh of relief. For the most part, we thought the work of Florida heirs and personal representatives would be a little easier. We were happy that we didn't move backward, and the idea of a choice between 2010 and 2011 laws for people who died in 2010 seemed to some like a stroke of genius.

Oops.

Of course, it's not a disaster. There is a law, after all. If the testator passed away in 2010, the estate may take capital gains on all assets worth more than $1.3 million (single heir) or $3 million (surviving spouse). The estate will not be subject to federal estate tax. That is the 2010 tax law with its modified carryover basis capital gains rule.

Or, the estate may opt for the 2011 tax law, with an estate tax of 35 percent applying to everything after the first $5 million. And, capital gains taxes will be assessed on the value of the property at the time of the testator's death. This is the 2011 law's stepped-up basis rule.

In a Rocky & Bullwinkle cartoon, all of the above would have been explained by Bullwinkle. It sounds simple. All you need is a flip chart and a pointer.

The real-life application would be explained by Rocky, because he can fly, and figuring out which of the two tax schemes is more advantageous for the heirs requires a chalkboard, some clean erasers and a soaring imagination.

Eenie meenie chili beanie, the spirits are about to speak -- in our next post.

Source: Wall Street Journal, "A tough call for heirs," Arden Dale, 05/21/2011