IRS quietly changes rule on how your children's inheritance is taxed - here's what you need to know to avoid a shock bill

Daily Mail ^ | Tilly Armstrong

[CaptainK]

The IRS has quietly changed the rules around taxes on inheritances, putting Americans in danger of being caught out if they try to transfer assets to their children.

The agency has curbed the tax break on a particular kind of trust often used to minimize estate taxes.

Prior to the new instruction, it was unclear what the tax policies were around assets passing to beneficiaries through an irrevocable trust.

But the Revenue Ruling 2023-2 has confirmed that these trusts will now be subject to capital gains tax, which will have a substantial impact on estate planning for Americans

[mewzilla]

Deep State’s extermination plan for the middle class is ticking along nicely...

[CaptainK]

Does the IRS have the power to inforce this change without the OK from Congress? I wish the article had more details.

[Spok]

“You’ll own nothing and be happy.” Don’t doubt that they mean it.

[Attention Surplus Disorder]

Meh. By the time you have a $12.9 MM estate, you can afford planning that will get you out of this snag.

[Fai Mao]

Who gave the IRS the right to make law?

[Alberta's Child]

I'm honestly surprised this "irrevocable trust" work-around lasted as long as it did. It seems to me that a tax on the capital gains in an estate would always have to be paid at some point even if it's deferred in an estate planning process.

The current Federal estate tax doesn't apply until an estate reaches about $13 million in value -- so this is hardly a "middle class" tax issue.

[monkeyshine]

I don’t know if this hits the middle class, since estates worth under $12 million are still exempt. That number will go down in a few years, though.

[Navy Patriot]

Who gave the IRS the right to make law?

Unaccountable IRS Bureaucrats.

[mewzilla]

Do you consider family farmers and other small biz owners rich?

I don’t.

In any case, it’s their money, dammit.

[dware]

Not like you actually OWN your piece of property. That’s just crazy!

[sauropod]

Bkmk

[jdt1138]

Who gave the IRS the right to make law?

Unaccountable IRS Bureaucrats.

They have lots of guns and ammo.

[roadcat]

Biden: “What’s yours is mine and the government’s. I get to spend it and keep some for myself. You just don’t realize we’re eventually going to get to all the rest of what’s yours.”

[mewzilla]

It’s their money.

Since when do we base the concept of ownership on how much someone has.

IOW, the more you have, the less it belongs to you.

We’re conservatives, aren’t we?

Or at least we profess to be.

What part of IT’S THEIR MONEY do people not get?!

[Red Badger]

Except the ‘be happy’ part...................

[Navy Patriot]

They have lots of guns and ammo.

Which they gladly Run across the Border for the Drug Cartels to use in the Murder of US Border Patrol Agents, a la Fast & Furious.

[Alberta's Child]

Whenever the IRS issues one of these formal Revenue Rulings, it usually lists the statutory authority it has been given by Congress to interpret complex financial questions in the Internal Revenue Code.

The IRS ruling on this particular point is an interesting one, based on my quick review of it. The IRS has determined -- probably correctly -- that a step-up in cost basis for an heir in an estate situation like this is not applicable because the irrevocable trust doesn't meet a critical condition that is required to circumvent a capital gains tax event: ownership of the asset was not transferred directly from the original owner to the heir or estate (i.e., it was placed in the trust before the death of the original owner).

When I look at this closely, it seems kind of obvious to me. If I sell $1 million of Microsoft stock, I have to pay any capital gains tax on it even if my heirs inherit the proceeds of the sale. I'm not sure why an irrevocable trust would work any differently if the owner of the Microsoft stock is still alive when it is placed in the trust.

[Alberta's Child]

Do you consider family farmers and other small biz owners rich?

Farmers and other small business owners are already covered by an estate tax exemption, but there's an important condition attached to it: the farm or business must continue to be operated by the heirs in order to be exempt from estate taxation.

If you ever hear a sob story about "a farm that had to be sold because the family couldn't afford to pay the estate tax after the farmer died," I'd suggest you ignore it. That only happens in a case where the next generation of the family had no interest in running the farm.

[Myrddin]

My parents placed their home in a real estate trust. It had CA Proposition 13 protection. When my mom sold the house and purchased another a few blocks from my sister's home, my son (a real estate broker) carefully managed the transaction to keep the new property under Proposition 13 and in the trust. That was fine until my mom passed and my father had made my sister the "executor" of the estate. I had no desire to hold the property. As 50% owner, I offered my sister an opportunity to buy out my half. Her attorney fumbled badly. He removed from property from the trust. My sister financed the 50% value to buy me out, but a consequence of the removal from the trust was loss of the Prop 13 protection. The property was re-assessed to market value and her "half" subjected to higher real estate taxes. The net effect is now her rent of the property just nets enough to cover the new mortgage and taxes. Before it was pulled from the trust, the protected property in the trust had only a $923 per year property tax and a monthly rental potential for over $2,000 per month. Ouch. The lesson is that even a trust isn't fool proof if a fool is permitted to mess with it.