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The Rules of Inheritance Relating To Irrevocable Trust Has Been Changed By The IRS

IRS Quietly Changed the Rules on Your Children’s Inheritance (Photo: Huber Fox)

In a recent ruling passed by the IRS, the rules of inheritance at the time of a grantor’s death have just been changed.

The facade of the IRS building (Photo: WNCT)

Rules of Inheritance Changed By The IRS

Properties such as your home are held in an irrevocable trust that is not included in the taxable estate at the time of death. In the previous rules of inheritance, a step-up basis was in place, meaning that the value of the house that you bought decades ago would be sold for today’s current value of the house. In a recent ruling by the IRS, the rules of inheritance have just changed. Your children, at the time of your death should you have included them in your irrevocable trust, would no longer receive a step-up basis for your home.

Although, before the IRS just the rules of inheritance, it was unclear whether beneficiaries would receive a step-basis from an irrevocable trust. This would eliminate any taxes from capital gains that would be owed. Over time, the assets of an individual are subject to capital gains taxes as their value would increase as time goes by. The capital gains owed by an individual largely depend on the value of the asset and its value from when it was purchased. Meaning that before the rules of inheritance were changed by the IRS, the step-up basis would also depend on capital tax gains and the irrevocable trust of the grantor.

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More On The Changes On Rules Of Inheritance

With the recent changes in the rules of inheritance, it would still be possible to set up an irrevocable trust that would allow beneficiaries to receive and include the assets within the taxable estate at the time of death by the grantor. Still, families would have to take note that properties will still be subject to estate taxes, regardless of their size. With the latest changes in the rules of inheritance, setting up an irrevocable trust carefully and meticulously would allow you to pass your assets to your children completely tax-free.

With that in mind, most families would not be subject to estate taxes since the current estate tax of the government is only applied to properties that are $12.92 million or more. In the recent rules of inheritance, families will likely feel the impact of estate taxes come 2026 when the limit for estate taxes is lowered.

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