Tips from the Pros: The “Hook” of Increased Income Tax Basis

The $11.18 million estate tax exemption ushered in under the Tax Cuts and Jobs Act may represent the prelude to a “Golden Age” of estate planning. The new exemption threshold offers a hook for clients: an increased income tax basis. If a client and an elderly or sickly relative both have assents below the exemption limits, the client can set up a trust granting the relative a testamentary general power of appointment (GPOA). When the powerholder passes away, the assets in the trust would be included in their estate, but not to such an extent that it would trigger the need to file an estate tax return. Furthermore, if the trust contains depreciated assets at the time of the powerholder’s demise, there is no step-down in basis for those assets. While this type of transaction may not be appropriate for every client, the potential for basis increase has very broad-ranging appeal.

See Turney P. Berry, Tips from the Pros: The “Hook” of Increased Income Tax Basis, Wealth Management.com, March 22, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.