This presentation discusses gift planning with irrevocable trusts and how the trusts can be structured so the assets still get a step-up in basis. The trusts grant a power of appointment and allow for this step-up on the power holder's passing.

1. Basis Planning with Gifting and
Irrevocable Trusts
P. Haans Mulder, JD, MST, MBA, CAP®
, CFP®
Cunningham Dalman, P.C.
phmulder@cunninghamdalman.com
(616) 392-1821
Serving West Michigan since 1900

2. Overview
• Basis Planning
• Basis Planning with Medicaid Planning
• Basis Planning with Business and Cottage
Succession Planning
• Basis Planning with Estate Tax Planning
Serving West Michigan since 1900

3. Basis Planning
• Gifting to a child or person results in a carry-
over basis (Code Section 1015(a))
• There’s no step-up on the donor’s passing
• This basis problem can be fixed by gifting the
asset to an irrevocable trust
Serving West Michigan since 1900

4. Basis Planning
• A trust can give a person a power of appointment
• This is a right to direct the assets during the
person’s life or at death (i.e. testamentary)
• A testamentary power of appointment is
exercised in a last will and testament
Serving West Michigan since 1900

5. Basis Planning
• Code Section 2041 addresses powers of
appointment
• A general power of appointment is a power a
person can exercise in him/herself, creditors of
him/herself, his/her estate, creditors of him/her
estate
Serving West Michigan since 1900

6. Basis Planning
• A general power of appointment causes the
assets subject to the power to be includable in
the power holder’s gross estate
• Code Section 1014(b)(4) allows assets subject to
this power to receive a step-up on the power
holder’s passing
Serving West Michigan since 1900

7. Basis Planning
• Give the grantor of the trust this power of
appointment so the assets in the trust get a
step-up at the grantor’s passing
• Give another person a power of appointment so
the assets get a step-up at the person’s passing
(“upstream basis planning”)
Serving West Michigan since 1900

8. Medicaid Planning
• Assets can be protected if they’re gifted outside
the five-year lookback period
• This could apply to a house, cottage, rental
property, brokerage account, or ownership in
LLC or corporation
Serving West Michigan since 1900

9. Medicaid Planning
• For clients who are doing Medicaid planning,
they won’t have taxable estates
• Gift the asset to an irrevocable trust and give
the grantor a general power of appointment
so the assets receive a step-up in basis on
the grantor’s passing
Serving West Michigan since 1900

10. Succession Planning
• Don’t gift the asset directly to the child or the
next generation
• Create a trust for the child and gift the asset to
that trust
• This could include ownership in a business or a
cottage
Serving West Michigan since 1900

11. Succession Planning
• If the current owner of the business or cottage
isn’t likely to have an estate tax issue, give
him/her a general power of appointment
• The business ownership or cottage will get a
step-up in basis on the owner’s passing
Serving West Michigan since 1900

12. Estate Tax Planning
• This planning often uses a spousal limited
access trust (“SLAT”)
• This involves gifting to a trust that’s for the
benefit of the grantor’s spouse
• It uses lifetime gift exemption and gets assets
out of the grantor’s estate
Serving West Michigan since 1900

13. Estate Tax Planning
• Unfortunately, these assets won’t get a step-up
in basis on either spouse’s passing
• Incorporate “upstream basis” planning
• Give an elderly parent or sibling a
testamentary general power of appointment
Serving West Michigan since 1900

14. Estate Tax Planning
• This is ideal when the parent or sibling is of
modest wealth and won’t have a taxable estate
• Upon the parent or sibling’s passing, the
assets in the trust will get a step-up to the
extent of the person’s unused estate tax
exemption
Serving West Michigan since 1900

15. Estate Tax Planning
• Use basis planning for a family or B trust (i.e.
a trust for the benefit of the surviving spouse
and shelters the assets from estate taxes)
• These assets generally won’t get a second
step-up on the surviving spouse’s passing
Serving West Michigan since 1900

16. Estate Tax Planning
• Decant the family trust or have it modified with
the approval of the probate court to include a
general power of appointment
• If the surviving spouse has unused exemption,
the assets will get a second step-up
Serving West Michigan since 1900

17. Thank You!
P. Haans Mulder, JD, MST, MBA, CAP®
, CFP®
Cunningham Dalman, P.C.
phmulder@cunninghamdalman.com
(616) 392-1821
Serving West Michigan since 1900