PLANNING FOR INCOME TAX BASIS "STEP-UP"
We continue to believe that passing property in trust for both a
surviving spouse and descendants offers the most benefit to your
family, because of estate tax savings and creditor protection
opportunities. However, a limitation of trusts is that trust
property is ordinarily not eligible for a "step-up" in
basis at a beneficiary's death. Property owned outright, on the
other hand, does get a "step-up" in basis at death, which
eliminates capital gains tax on any gains to that point. In the
current tax environment of lower estate and gift tax rates coupled
with higher income tax rates, this would seem to present an
"either/or" choice - take advantage of the trust
structure or give up the opportunity for capital gains tax relief
afforded by the basis step-up rules.
