- On November 14, 2016
Avoid Paying Capital Gains Tax On Your Assets During Your Life
by Using Your Elderly Parent\’s Unused
Estate Tax Exemption
POAST Planning Goal: Avoid paying capital gains tax on your low basis assets during your lifetime by using a portion or all of your parent\’s otherwise unused estate tax exemption upon their passing.
Does POAST Planning Apply to You and Your Family?
- Do you have low tax basis assets (i.e., closely held stock, LLC units, mutual funds, marketable securities or real estate)?
- Are you hesitant to sell due to capital gains tax consequences?
- Do you have an elderly, or physically unhealthy, parent or other relative, who is creditor free?
- Does this relative have a taxable estate worth less that $5.45M?
- Do you have a good personal relationship with the relative?
If the answer to all five of these questions is \”yes,\” then you may be able to achieve an accelerated step-up in basis regarding your assets during your lifetime by harvesting a portion or all of your relative\’s unused estate tax exemption.
How does POAST planning work?: Assume you have low tax basis assets. Also assume your elderly Dad is creditor-free and is of low to moderate wealth. Also assume that you have a pre-existing trust plan in place benefiting your spouse and/or children. You can add carefully drafted Power of Appointment Support Trust (\”POAST\”) provisions to your trust plan designed to intentionally cause your trust assets to be included in your Dad\’s taxable estate. Why cause upstream inclusion in your Dad\’s taxable estate? Because if your Dad dies before you, and your Dad\’s taxable estate (which calculation includes your trust assets due to the POAST provisions) is less than the lower of your Dad\’s applicable state and federal estate tax exemptions (2016 federal exemption is $5.45M), no estate taxes will be payable at your Dad\’s death and, most importantly, the assets in your trust will be stepped-up to their fair market value for purposes of capital gains planning. Therefore, if you decide to sell the stepped-up trust assets on the day after your Dad\’s passing, your trust will not pay capital gains tax. The capital gains tax savings can be tremendous. A great result.
How Do You Implement POAST Planning?: If you believe that POAST planning can benefit your situation, please call Andrew Kelleher, David Buckley, Bob Holland, Linda Fine or Vas Russis at (847) 382-9130. Please note that this discussion is not intended to be, and is not, legal advice.