Monday, July 9, 2018
Griffin H. Bridgers recently published an Article entitled, Basis Step-Up Planning: A Double-Edged Sword, Probate and Property Magazine, Vol. 32 No. 4, July/August 2018. Provided below is an abstract of the Article:
Estate tax planning has, for decades, revolved primarily around maximization of the estate and gift tax applicable exclusion amount, with tax reform also focusing primarily on increases to that amount. With the recent enactment of the Tax Cuts and Jobs Act, P.L. 115-97, we have seen this exclusion increase from $675,000 per taxpayer in 2001 to $11.18 million per taxpayer in 2018. This has dramatically reduced the impact of the estate, gift, and generation-skipping transfer taxes. As a result, the focus of tax planning will likely continue to shift to income taxation. One of the biggest modern goals of tax planning now is maximizing the opportunity to obtain a step-up in income tax basis for family assets at least at the death of the client. The recent doubling of the estate tax applicable exclusion amount is certain to increase this type of planning.
While such transfer are driven by a desire to save income taxes, practitioners may neglect the state law implications of this type of planning, which we will refer to in the remainder of this article as "basis step-up planning." While the effects of such planning can differ from state to state, this article addresses some of the broad issues that should be considered before engaging in substantial basis step-up planning.
For purposes of this article, with respect to powers of appointment, reference is made primarily to the Uniform Powers of Appointment Act (UPAA), as published by the Uniform Law Commission in 2012. For purposes of analyzing powers of appointment, the following defined terms are derived from section 102 of the UPAA. The "donor" is the person creating a power of appointment, the "power holder" is the person in whom the power of appointment is created by a donor, "permissible appointee" means the person in whose favor the power of appointment may be exercised, and "appointive property" refers to the property over that the power of appointment may be exercised. A general power of appointment is generally defined in section 102 of the UPAA as being a power which can be exercised in favor of the power holder, the power holder's estate, a creditor of the power holder, or a creditor of the power holder's estate.
In addition, with respect to trusts, reference is made primarily to the Uniform Trade Code (UTC), as last amended by the Uniform Law Commission in 2010. Reference is also made to the Uniform Probate Code (UPC), as last amended by the Uniform Law Commission in 2010.