Irrevocable Grantor Trusts (IGTs) have been a popular tool for estate planning. They help you reduce estate taxes, avoid probate, and distribute assets according to your wishes. But a new IRS ruling (Revenue Ruling 2023-2) throws a wrench into things. Let’s break down what this means for you.
What are Irrevocable Grantor Trusts (IGTs)?
Think of an IGT as a locked box. You put assets in the box (like stocks or cash), and a trustee manages them according to your instructions. Once the assets are in, you can’t take them back (it’s irrevocable!). This keeps them out of your taxable estate, potentially reducing estate taxes.
What’s the Problem?
Normally, when you inherit assets, their value gets a “step-up” to their current market value. This reduces capital gains taxes for your beneficiaries. However, the IRS says assets in IGTs don’t qualify for this step-up under the new ruling. This could mean your beneficiaries pay more in taxes when they sell the assets.
Should You Still Use IGTs?
Maybe. IGTs can still be valuable for:
- Protecting Assets: They shield assets from nursing home spend-down requirements for Medicaid and VA benefits.
- Estate Planning Flexibility: With careful planning, you might be able to move assets back to your estate before you pass away to get the step-up in basis.
What to Do Now?
- Talk to an Estate Planning Attorney: They can review your specific situation and see if an IGT is still right for you.
- Consider Other Options: There might be other ways to achieve your estate planning goals.
- Stay Informed: The IRS ruling could be challenged in court.
Key Takeaways:
- IGTs can be a powerful estate planning tool, but the new IRS ruling adds complexity.
- Talk to an attorney to see if an IGT is still the best option for you.
- Keep up-to-date on any legal changes that might affect your estate plan.
If you aren’t sure about the affects on your estate plan, or you want to make updates, contact us today!
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Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.