Daily Mail By Tilly Armstrong 7/5/2023
• The agency has curbed the tax break on a particular kind of trust that is often used to minimize capital gains taxes
• In the last decade, more families have begun utilizing 'irrevocable' trusts and the ruling will impact estate planning
• Americans have turned to irrevocable trusts to protect their assets from spend-down in order to qualify for Medicaid
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.
In the last decade, more families have begun utilizing 'irrevocable' trusts - that allow Americans to protect their assets and avoid a lengthy probate process when a relative dies.
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.
Typically, assets that are disposed of during a person's lifetime are subject to capital gains taxes on the increase in value of the asset over time.
The tax owed is largely determined by the difference between how much the asset was worth at the time it was purchased, versus its value at the time it is transferred.
The exception to this rule has been when assets, such as property, are passed on to beneficiaries at the time of an individual's death.
More:
https://www.dailymail.co.uk/news/article-12267033/IRS-quietly-changes-rule-childrens-inheritance-taxed.html
