Published by Kiplinger.com
Written by Lindsay Graves
“In March, the IRS issued Revenue Ruling 2023-2, which had a substantial impact on estate planning, particularly where an irrevocable trust is involved. In the last decade or so, more families have begun utilizing irrevocable trusts to protect their assets from spend-down in order to qualify for government benefits, such as Medicaid and VA Aid and Attendance.”
“Prior to the issuance of this ruling, it was unclear whether assets passing to beneficiaries through an irrevocable trust would receive a step-up in basis, thereby eliminating any capital gains taxes that would otherwise be owed. Historically, assets that are disposed of during an individual’s lifetime are subject to capital gains taxes on the increase in value of that asset over time. The amount of capital gains owed is determined largely by the difference between the value at the time of purchase and the value at the time of transfer.
“An exception to the obligation of capital gains taxes has been when assets pass at the death of the owner to their beneficiaries. The death of the owner bestows upon the recipients a step-up in basis, so they inherit the asset as if it had been purchased at the current fair market value, not the value at the time the asset was actually purchased. This eliminates any capital gains, and so no taxes become due.
What about an irrevocable trust?
“But what to do about assets in an irrevocable trust? They are not currently held by the purchaser of the asset, nor have they passed to the beneficiaries. Prior to March 2023, such transfers from the trust at death have been generally receiving the step-up in basis. But that may not be the case any longer. This new ruling by the IRS states that property held in an irrevocable trust that is not included in the taxable estate at death will not receive a step-up in basis any longer.
“At first glance, it sounds like anyone who does irrevocable trust planning will be subjecting their children to additional taxes. You may be wondering why anyone would do irrevocable trust planning in the first place. As Americans are aging and living longer, more are finding themselves in need of long-term care to the tune of, on average, $6,500 to $10,000 per month, depending on where you live and what level of care you need.
“Very few families can afford to pay that out of pocket without depleting their life savings, which means turning to programs like Medicaid or VA Aid and Attendance to help with the cost. However, before you can qualify for such programs, you will be expected to go through a spend-down of your assets to a level set by the state in which you reside. One of the only tools that can protect assets from being subject to the spend-down process is an irrevocable trust.”
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Bob has a passion for making your money work hard for you. He takes profound joy in ironing out a plan for a long and comfortable retirement, no matter what your current income or level of wealth. With a work ethic second to none, he has a zeal for transforming uncertainty into stable ways for you to protect your future and your family. He knows that the quality of your life you enjoy today can remain as rewarding—or even better—after retirement.
With a strong background in information technology, Carol is instrumental in building operational policies and strategies that keep the organization functioning smoothly. Carol’s organizational skills and her flexibility to jump from priority to priority along with her commitment to customer service makes her an essential part of the Grimard Financial team. When Carol is not working with the Grimard Financial Family, she is a very creative and accomplished photographer.