Revenue Regulation 2023 - Law Offices of Ann Margaret Carrozza

- December 06, 2023

Revenue Regulation 2023

Avoid Letting Excessive Tax Planning Lead to Additional Taxes!

My phone hasn't stopped ringing—if you could ask someone older than fifty to translate. In response to the most recent IRS Revenue Ruling 2023-2, there have been calls and emails. According to the decision, assets placed into an irreversible trust would pass to the next owner on a "carryover basis" rather than a "stepped up" or Fair Market Value cost basis as they are not included in the taxpayer's estate upon death. Put otherwise, the trust beneficiary receives assets from this trust with a significant latent tax impact.

Understandably, many irrevocable trust holders get extremely alarmed at the thought of subjecting their loved ones to capital gains taxes. Who is this recent verdict concerning? Only those with the incorrect choice of trust! Here are some guidelines to assist you in calculating your tax liability.

A person whose estate assets are valued below the federal estate tax threshold of $12.9 million is typically not a good fit for the kind of trust that the Revenue Ruling suggests. I should WANT my assets to be included in my gross taxable estate if they are below the applicable estate tax level. Why? Because under IRC Sec. 1014, that is how we obtain the required "Step Up in Basis."

I believe that the most common misconception is that there are two kinds of trusts: irrevocable and revocable. It would be like to asserting that there are just two colors. Trusts come in a plethora of forms. For long-term care and other asset preservation goals, for instance, we could choose an irreversible trust. But typically, we also want these assets to be able to be included in the Estate. Congratulations! Your heirs won't pay capital gains taxes if your trust grants you complete lifetime ownership of any trust property, all trust property income, and/or the flexibility to modify your beneficiaries. It might be necessary to adjust your trust, though, if it's too constrictive. Indeed.- even irrevocable trusts can be modified!

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