For young, affluent people, designing an estate plan is a challenge because it’s difficult to predict what the estate and income tax laws will look like — and what their own net worth will be — decades from now. If you believe that your estate’s value will remain lower than the gift and estate tax exemption amount, it may make sense to hold on to your assets and transfer them at death so your children or other heirs can enjoy the income tax benefits of a stepped-up basis.
But what if your wealth grows beyond the exemption amount or Congress reduces the exemption amount? If that happens, removing assets from your estate as early as possible is the better tax strategy. Unfortunately, by the time circumstances have changed, it may be too late to adopt that strategy.
One solution is to use an irrevocable trust. It can remove assets from your estate now, while giving the trustee the authority to force the assets back into your estate if that turns out to be the better strategy. This allows you to shield decades of appreciation from estate tax while retaining the option to include the assets in your estate should income tax savings become a priority.
Please contact us to better understand the benefits and risks of this strategy.