An IRS ruling clarifies how the step-up-in-basis rule applies to irrevocable trusts. When you inherit assets through a trust, you typically avoid capital gains tax. The ruling settles years of uncertainty among estate planners about whether this benefit applies to irrevocable trusts.
Many of you have asked me about the recent IRS ruling. So right off the bat, let me clear up several inaccuracies that I've heard. Has the IRS ruling done away with trusts? No. Has the IRS ruling done away with revocable trust? No. Has the IRS done away with your ability to avoid probate through a trust? No. Was the president responsible for this? No. Here's the deal. Normally, if you inherit through a trust, you receive a step-up in basis on the asset that you are receiving from the person who created the trust at the time of their death. So let's say your parents leave their home to you through their trust. That means is you will owe no capital gains tax on that home. That is certainly true with a revocable trust and still is, but there had been some question about whether or not that was accurate when it came to an irrevocable trust. In 2015, the Treasury Department began asking questions about this. And prior to this ruling, several well-known estate planners had taken the position that yes, the step-up in basis should be retained. Other well-known estate planners took a more conservative approach.
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