By: Anthony Santoro, Esq.
The IRS has issued a Revenue Ruling that could impact the estate planning strategies of wealthy families. According to Revenue Ruling 2023-02, the basis of assets in an irrevocable grantor trust will not be adjusted to fair market value upon the grantor’s death if the assets are not included in the grantor’s gross estate when he or she dies.
In this scenario, the basis of the property in the hands of an acquirer will be its fair market value on the date of the decedent’s death. Even though the trust’s owner must pay Federal income tax on trust income (often referred to as “defective” for income tax purposes), the trust’s assets are not considered to be acquired or passed from a decedent and are not considered to have been acquired or have passed from a decedent under Sec. 1014(a).
Therefore, the step-up in basis provided in Sec. 1014(a) that generally applies to the fair market value of a property when a person dies to property received by heirs does not apply. For property to receive the step-up in basis, it must be acquired or passed from a decedent. To meet this criteria, the property must fall within one of the seven types of property listed in Sec. 1014(b). These types of property include:
- Property acquired by bequest, device, or inheritance or by the decedent’s estate from the decedent.
- Property held in a revocable trust.
- Property passing by a general power of appointment under a will.
- Property that is a spouse’s one-half share in community property.
The IRS signaled that this guidance was coming last November, and many practitioners have been adjusting estate planning strategies for clients accordingly since then. While IRS Revenue Rulings aren’t binding on courts and don’t have the force of law or weight of regulations, they reflect the government’s position on issues and may be given deference.
Contact Simon Quick if you have any questions about how this Revenue Ruling might affect your estate planning strategies. You can call us at (973) 525-1000 or send an email to firstname.lastname@example.org to discuss your situation in detail.
About Anthony Santoro
Mr. Santoro joined Simon Quick in 2022 and currently serves as a Client Advisor. His expertise includes tax, executive compensation, estate planning, and wealth transfer. At Simon Quick, Anthony provides clients with holistic oversight and counseling at the intersection of law and finance. Prior to Simon Quick, Anthony worked as an attorney, where he concentrated his practice on trust and estate planning and administration, representing owners of closely held businesses and principals of private equity funds. Anthony began his financial services career with Ayco, a Goldman Sachs financial planning-focused firm. Most recently he served as an Attorney in a Trust and Estates Law Firm and as a Partner and Family Office Director with their affiliated RIA. Anthony graduated with a BS from SUNY Albany and his Juris Doctorate from Albany Law School. He is a member of the New York State Bar Association and Financial Planning Association of Northeastern New York. To learn more about Anthony, connect with him on LinkedIn.
Simon Quick Advisors, LLC (Simon Quick) is an SEC registered investment adviser with a principal place of business in Morristown, NJ. Simon Quick may only transact business in states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of our written disclosure brochure discussing our advisory services and fees is available upon request. References to Simon Quick as being "registered" does not imply a certain level of education or expertise. No information provided shall constitute, or be construed as, an offer to sell or a solicitation of an offer to acquire any security, investment product or service, nor shall any such security, product or service be offered or sold in any jurisdiction where such an offer or solicitation is prohibited by law or registration. Additionally, no information provided in this report is intended to constitute legal, tax, accounting, securities, or investment advice nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. It should not be assumed that future performance of any specific investment or investment strategy will be profitable, equal any corresponding indicated performance level(s), be suitable for your portfolio or individual situation, or prove successful.