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IRS changes inheritance rules (red flag for you?)

IRS changes inheritance rules (red flag for you?)

September 12, 2023

The IRS recently updated some rules about trusts that could make your heirs accidentally liable for capital gains taxes.1

It's another quiet change that could severely impact families trying to maximize their legacies.

Here's what changed:

Under new IRS rules, assets inside irrevocable trusts may not receive a step-up in basis unless those assets are included in the taxable estate upon death.

If your estate strategy includes an irrevocable grantor trust, you should work with an attorney and review your trust to avoid saddling heirs with unexpected tax bills.

Typically, assets inherited at death receive a step-up in cost basis to the current fair market value, which eliminates any capital gains achieved during the giver's lifetime.

However, under the updated rules, any assets held in irrevocable grantor trusts (used by many to limit estate taxes and protect assets from judgments or creditors) will not receive that step-up in basis unless they are included in the taxable estate.1

Your loved ones could accidentally inherit a massive tax bill depending on how the trust is set up.

Changes like this make it critical to review your estate plan regularly.

Tax rules change frequently and I don't want your family to be caught unawares.

This 2023 change is just one of many that are likely coming in the years ahead.

For example, current estate tax exemption amounts ($12.92 million per person and $25.84 million for a couple in 2023) will expire at the end of 2025.2

That means that if the government doesn't extend the current rules, the estate tax exemption reverts to the 2017 amount of about half of today's limit.

Many more families could suddenly become exposed to massive tax bills.

If leaving a legacy to your loved ones is important to you, reviewing your estate strategy for red flags is vital.

Can I help you review your estate plan?

If you haven’t reviewed it within the last few years, please set time up with an estate attorney to see if you need to make any changes.

You might even have "estate planning" as a task on your (endless) to-do list.

I'd like to help you move it to the "done" column.

P.S. Reviewing estate strategies and documents isn’t what anyone would consider fun. (Except for maybe some attorneys I know.)

But a well-planned legacy is as much a gift to our heirs as the financial assets themselves. No one wants to leave problems behind.