Estate, Gift & Trust Conference - Virtual-Denicolo and Exline

Denicolo and Exline - Community Property Trusts Pt 1 and 2

Pdf Summary

The document explains advanced estate and income tax planning focused on maximizing “step-up in basis” at death. Under IRC §1014, assets included in a decedent’s estate generally receive a basis reset to fair market value, reducing capital gains taxes for heirs. With today’s high estate tax exemption, planners often seek estate inclusion for tax basis benefits rather than exclusion from estate tax.<br /><br />A major theme is community property. In true community property states, both halves of community assets may receive a full step-up at the first spouse’s death under §1014(b)(6). The presentation reviews traditional community property states, elective community property trust states (Alaska, Tennessee, South Dakota, Kentucky, and Florida), and the uncertainty over whether the IRS will respect elective community property trusts for full basis step-up purposes. It also warns about creditor exposure and state-law differences.<br /><br />Another planning technique discussed is intentionally causing estate inclusion using general powers of appointment (GPOAs). Under §1014(b)(9) and §2041, property subject to a GPOA can be included in the powerholder’s estate and receive a basis step-up. This can be used upstream to older family members with shorter life expectancies, but it creates creditor, divorce, and estate-tax risks. Formula GPOAs, independent consent requirements, and careful drafting can help manage these risks.<br /><br />The document also covers the Joint Exempt Step-Up Trust (JEST), designed to give married couples a full step-up while reducing §1014(e) issues and preserving creditor protection better than simple revocable trust planning. Finally, it discusses partnership-tax basis planning, where high-basis and low-basis assets can be shifted within partnerships to improve tax outcomes, especially if entities are kept separate by asset type.

Keywords

step-up in basis

estate tax planning

IRC 1014

community property

general power of appointment

basis step-up

elective community property trust

Joint Exempt Step-Up Trust

partnership tax basis

capital gains tax