Did the IRS change the rules to take away a basis step up for assets held in an irrevocable trust?

There's a misconception floating around - that the IRS has made changes concerning the basis step-up for assets held in an irrevocable trust. To clear the air, the IRS has not made such changes. These rules have remained consistent for a significant amount of time. The IRS just clarified the rule that has always been in place--for assets to get a step-up in basis on death, they must be included in the gross estate for estate tax purposes.
Are there cases where assets held in irrevocable trusts get a basis step up? Yes, and those assets are generally subject to estate tax.
Bottom line: if the assets aren't subject to estate tax, then there's no step-up in basis. Don't fall for the fearmongering.
I'll explain a number of things about basis and what changes have actually been implemented.
- Understanding Basis Step-Up
- The Benefit of Basis Step-Up
- The Evolution of Estate Tax Exemption
- Irrevocable Trusts: Why we Use Them
- Clarifying the Misconception on The IRS Ruling: 2023-2
---------
Strohmeyer Law is a law firm based in Houston, Texas, specializing in tax law, estate planning, and probate law.
Nothing in this video is specific legal advice for you. Watching or commenting on this video doesn't create an attorney-client relationship.
***Sign up for our 5-Day Estate Planning Challenge HERE: www.strohmeyerlaw.com/houston...
For more information, visit: www.strohmeyerlaw.com
Instagram: strohmeyerlawpllc

[@strohmeyerlawpllc]

There's a lot of questionable info out there on the internet about this, so if you've got questions, post them here, and we'll try to answer!

[@charleshunt5292]

Thank you John, I believe that the step up will still be allowed if the specific language in an irrevocable trust reads; "Overriding Tax Purpose And Limited Power of Appointment." "Income taxation: This Trust shall be a grantor trust under 671 if the IRS Code." "Not Completed Gifts: All gifts made to this Trust shall not be completed gifts for federal gift tax purposes." "Right to substitute Assets: The Settlor hereby retains the right exercisable in a nonfiduciary capacity, to reacquire trust assets by substituting assets of equivalent value. This power may be exercised without the consent of any fiduciary of the trust." "Limited power of appointment: The settlor hereby retains the sole and exclusive right to appoint all or a portion of the trust property remaining at his or her death, in further trust or outright and free of any trust, to or for the benefit of any one or more of the Settlor's issue in such manner or proportions as the Settlor shall appoint by his or her Last Will and Testament" What are your thoughts

[@strohmeyerlawpllc]

Based on what you've posted, I would be nervous about taking the position that there would be a basis step up at death. You'll need to have your own advisor give you advice based on your specific circumstances. The "not completed gift" language is the only thing that helps with this, and there could be other language in the agreement that undermines that. The "Income taxation" and "Right to Substitute Assets" are income tax provisions, and should not trigger estate inclusion. The "limited power of appointment" provisions would not trigger estate inclusion.

[@ocrun6765]

Does the basis step up to the FMV on the date gifted to irrevocable trust? When you mention passing through estate does that expose the asset to creditors?

[@strohmeyerlawpllc]

There are ways where assets gifted to an irrevocable trust will get the basis and ways that it will not. You will need to work with your own advisor to determine if assets inside an irrevocable trust will get the step up. The assets must be included in the gross estate for federal estate tax purposes to get the basis step up. It is possible to have assets exposed and not exposed to creditors. Again, you’ll need to work with your own advisor regarding specific situation.

[@frednesvet5046]

Spouses usually title their house in their revocable trust if they have one. When they die, do the heirs still get a step up in basis if the house remains in trust because the heirs need or want to use the house as their residence? When the heirs die, will the remainder beneficiaries get a new step up in basis for the value at the original heirs date of death?

[@strohmeyerlawpllc]

General speaking, assets will get a step up in basis if they are included in the decedent’s gross estate for estate tax purposes. The step up (or down) is to fair market value as of the date of death of the person’s death in which the asset is included in their estate. Because revocable trusts are generally subject to estate tax, the assets inside the trust get an updated basis.

[@coin-on-crypto]

Hi is it possible to sell a house that's in an irrevocable trust , i would like to move ? Being I am the trustee and beneficiary ?

[@strohmeyerlawpllc]

The trust agreement will list the powers that you have, which generally includes the ability to sell assets. You’ll need to review the terms of the trust agreement with your own advisor to confirm that you can do this.

[@gsm6120]

Hi! Does brokerage stocks assets in a revocabe living trust gets a step up basis? The trustees are husband and wife. Husband dies. Now the wife is the beneficiary of the assets in trust.

[@strohmeyerlawpllc]

Generally, yes, but you will need to check with your own advisors about your own specific situation. Unfortunately, we can’t give you specific advice about your situation on KZbin.

[@gsm6120]

Thank you for your reply and direction.

[@strohmeyerlawpllc]

You’re welcome! Good luck with your situation.