Want your family to really love you? One term: stepped-up basis. You are going to love Internal Revenue Code § 1014(a) because it could save you or your loved ones taxes.
Let’s say the family farm your parents give you the family farm. You know if you sell it, the IRS will tax you, essentially, upon the difference between what was paid (cost basis) for the farm (perhaps a low price many, many years ago) and the price for which you sell it today.
You can pass along assets in a better way through your estate plan. Then, your loved ones may not pay tax on the difference between their sale price and your cost basis. Instead, they can have the asset appraised as of your death, and use that recent appraisal figure as their stepped-up basis. With that, they pay only the difference between the sale price they receive and that new stepped-up basis.
It is simple to imagine the tax difference can be astounding, especially where an asset may have been held 30-40 years.
Love your family. Give them more by helping them save on taxes.
Trusts can pay for your children’s college or other post-secondary education. One of the things a Trust is great for is giving a Trustee the discretion to make distributions. These can over time to or for the benefit of a your child. So, your Trust can provide, “$75,000 shall be set aside for my daughter, Beth’s, post-secondary education. No more shall be distributed during a given school year than is necessary to meet her unmet budget. The unmet budget shall be as defined under Federal Student Financial Aid guidelines or substantial authoritative equivalent.”
This provision can be effective during your life, or thereafter. It works, and it is that simple.
You are thinking about finally taking action on your estate plan. Does it seem like it will be too involved, too complicated. It’s not! In a few minutes over coffee or on the phone, I can ask you a few questions about what you want for your family. Later, I may follow up for a few details. But you may be very surprised at the ease of completing your plan. I know a lot of options. You only need to answer some very basic questions. Really! Get in touch – I want to prove it.
– Rather than one-time, court-supervised liquidation or distribution, assets and funds in your Trust can be managed, for example, for the benefit of surviving spouse or for the benefit of children (and in contemplation of higher education, age, etc.), whether minors or not;
– no need to probate with the court, since your Trust is a private contract, binding the Trustee to act in accord with its provisions and defining benefits, and when or if such benefits should change; Trustee reviews assets owned by the Trust and manages, distributes or writes checks per beneficiary provisions;
– a Trust is written so that it could save you estate taxes, in the event you exceed the Unified Tax Credit; the UTC is relatively high now but I like to draft Trusts as if the threshold may come down or assets may exceed what clients anticipate;
– amending a Trust is a simple matter: Grantors should normally reserve the right and authority to amend the Trust, then amendments may be made from time to time without re-writing the entire document.