President Obama issued a proposal at the 2015 State of the Union Address that would have closed loopholes available to those with assets in a trust. Currently, if assets are passed on to heirs, the heirs get what is called a step-up in basis. In other words, their cost basis is the current price of the asset instead of what it was worth when it was first purchased.
For instance, if an asset were worth $10,000 when purchased and worth $50,000 today, there would be a capital gains tax on $40,000 of appreciation. However, an heir would be allowed to sell the shares and only pay on any future appreciation. While this would seem to make trusts less attractive, it may actually be the opposite in reality. For those who would have more than the $10.86 million estate exemption available to married couples, it may be best to put assets into a bypass trust.
With a bypass trust, an amount equal to the estate tax exemption is made available to the spouse. The rest of the estate is then passed on to the next generation for their use. An attorney in New York pointed out that it may be more beneficial to create dynasty trusts and avoid paying capital gains taxes each time an individual passes on.
Regardless of how much money an individual has, it may be worthwhile to talk to an estate planning attorney. An attorney may be able to help create a trust or other plan documents and increase the odds that assets are distributed according to that person’s wishes. Creating a cohesive estate plan now may reduce the odds of legal challenges or family squabbles that could delay distribution of assets and result in frayed relationships.