Placing your assets in an irrevocable trust when planning your estate in New York is one way to provide for your heirs. If you have selected one of these plans to be eligible for government help in your later years, it’s important to note that the Revised Rule 2023-2 could affect the valuation of your estate.
Step up in basis tax planning changes
An increase in the worth of an asset when appraised for sale after the initiation of tax planning would usually reset the basis or “step up” the asset’s value so heirs do not incur capital gains taxes on their inheritances.
A home’s basis is $900,000, and it is in trust until the grantor’s (estate holder’s) death, for example. Later, if the home’s value increased to $1,200,000, the government would allow it to be reset to a higher amount as its basis. By doing this, the heirs would receive a tax break on the capital gains of the home’s value when they inherit it. However, they must pay capital gains taxes if they decide to sell the property at a higher value. Yet, Revised Rule 2023-2 requires that trust holders place assets in the taxable estate at the time of their death or be forced to pay capital gains taxes.
To follow the new rule, it is necessary to include all assets in the taxable estate and pay the estate taxes associated with receiving a step-up basis at distribution. Assets not included in the taxable estate will incur a capital gains tax upon transitioning from grantor to heir. That’s the worst part about the new tax law, but there is some good news.
Estate tax planning exclusions
In 2023, the government implemented an estate tax exclusion of $12.92 million per person ($25.84 million for married couples) on estates. This means that if the estate exceeds the per person or married limit, it must file and pay the taxes associated with its worth. Resourceful and timely tax planning, including adding an asset into the taxable estate, allows many citizens to avoid the tax bill and gain the step-up basis.
It is important to review your estate plans and irrevocable trust to stay in compliance with the latest tax laws and ensure a seamless transition of your estate. Regular tax planning meetings with financial advisers can benefit your estate’s distribution.