>>15617463 Evergreen. Rodney put his house in a trust weeks before Durham closed in.
The problem with his action is that Charitable and Family Trusts have a 2 year contestibilty challenge with the IRS and DOJ. He should have done this 4-5 years ago
THE STEP-UP PROVISION OF REVOCABLE TRUSTS AFTER DEATH
Whether the assets are houses, money, or stocks, step up in basis at death revocable trust makes a big difference in the beneficiary’s tax obligations at the grantor’s death. If this provision is not invoked, the beneficiary’s inherited assets will amass heavy tax burdens.
Suppose Jake’s father inherited 1000 shares in 1980 that were trading at $100 a share. Following several stock splits, the holdings grew into 8000 shares, trading at $500 apiece, a gain of $3,900,000. At the time of Jake’s inheritance, if there is no step-up and using the 20% tax rate, a $780000 tax liability would be incurred. By contrast, there’d be no tax liability with the tax-free step-up provision if Jake sells these shares immediately after inheritance.
As seen in the above example, the step-up basis reflects the change in the value of inheritance assets. For the shares bought at $100, if they trade at $500 when a beneficiary inherits them, they get a step up in basis (value) such that taxation is based on the difference between the $500 market price and the original.
Protecting Assets from Double Taxation
The step-up in basis tax provision protects the asset in a revocable trust from heavy taxation. Grantors and trustees can take advantage of this provision to reduce or eliminate capital gains taxes.
The assets in a revocable trust appreciate and provide the grantor with a consistent income stream in their lifetime. Upon the grantor’s death, the heirs get to take advantage of the appreciation in the value of the assets because they are taxed on the step-up value difference instead of the original cost, making it possible to avoid taxation.
Reducing Compliance Requirements
On basis, step-up reduces compliance costs and requirements for beneficiaries because tracking the cost basis of assets inherited over many generations can be problematic. This provision can also protect beneficiaries from paying estate taxes on assets put in trust many years ago-for the excuse that there isn’t an accurate model for estimating their original cost.
With a step-up basis in place, the beneficiaries get to avoid estate and capital gains tax if they sell assets in the trust shortly after inheriting them. If they hold onto the assets and sell in the future, capital gains taxes would be postponed to when they sell the assets, and it would be computed on a stepped-up basis at the tax rate of that time. As a tax avoidance strategy, the beneficiary can keep the trust assets, continue receiving income, and then pass the assets to a new heir.
Do irrevocable trusts get a step up in basis at death?
In a grantor trust, even though the trust property is removed from the donor’s taxable estate for the estate tax, the trust is still treated as the grantor’s for income tax purposes. Instead of a tax-free basis step-up at death, a carryover basis applies.
Beneficiaries in an irrevocable trust can put off this tax liability until their death. The tax would be due when the assets in the trust get transferred to a new heir. Under a carryover basis, all appreciation in the value of the assets from the time the trust was set up is taxable.
Tax matters are an essential component of trusts and wills. A trust attorney can help trustees and beneficiaries understand trust tax obligations and provisions. It would be best to have assistance and advice in filing and compliance and representation when discussing disputes with the Internal Revenue Service, IRS.
While many individuals have heard of contesting a will, a trust may also be contested in certain circumstances. If a trust is successfully contested, the trust can be modified or even eliminated in some situations.
Legal Background
A trust is a legal document and arrangement in which a person names another person to hold property on behalf of a third person. The person making the trust is called a grantor or settlor. The person whose job it is to protect the trust assets is the trustee, and the person benefiting from the arrangement is the beneficiary. The grantor establishes the terms for managing the trust property and income, and the trustee’s role is to fulfill these instructions. The trustee is considered a fiduciary, owing the beneficiaries certain legal duties
https://www.hg.org/legal-articles/contesting-a-trust-22083
https://www.hg.org/legal-articles/contesting-a-trust-22083