Legal Question in Wills and Trusts in New York
Irrevocable Trusts and gift tax exemption
My father would like to set up an irrevocable trust and received two conflicting opinions from 2 lawyers. He lives in New York City and has already exhausted the one time $675,000 lifetime exemption from gift taxes. He would like to put about $250,000 of stocks into this trust where his children would be the beneficiaries.
One attorney is saying that the $250,000 of stocks would be subject to the gift tax and when my father dies the basis of the capital assets would be the original price of the stocks.
Another attorney states that in New York, an irrevocable family trust can be amended if the grantor and the beneficiaries of the trust agree to the amendment. He states that if my father retains the power to change the interests of the remainder beneficiaries, the transfer of assets to the irrevocable trust is an uncompleted gift and would not be included on the gift tax return. Only upon the death of my father is the gift completed and at this point would be treated as an inheritance and the basis of the capital assets would be stepped-up to the fair market value as of the date of death.
Who is right?
2 Answers from Attorneys
Re: Irrevocable Trusts and gift tax exemption
They both are right.
If there is a transfer to a truly irrevocable trust
there is an immediate gift tax to be paid
If the trust agreement is labeled irrevocable, but
really is not because there is the retention of
of rights, there is no present gift tax. But the
value of the property will be included in the estate
of the giftor and will be treated as such
Do not forget that the step up in basis may
be phased out in ten years under new law
Do not forget that if it is included in estate
it is subject to estate tax
Do not think for a second that if there is a retention
of rights to avoid the present gift tax, that the
trust will qualify for medicaid avoidance
Re: Irrevocable Trusts and gift tax exemption
All of the advice received is correct.
The real issues are, why the gift and why an irrvocable trust?????????
Next year the annual exclusion is increased to $1,000,000. So what's the rush?
In the interim, read about gifts and the benefits and detriments.
Gifts of this size require thorough and professional study. Make sure you get a good lawyer to guide you.
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