Optimal Basis Increase Trust™ (OBIT)
Most taxpayers are no longer directly impacted by federal estate taxes, which now only affect those with taxable estates over $11.4 million ($22.8 million for couples). These numbers are even adjusted for inflation. In addition, the income tax rates have increased for trusts and those making over $200,000 ($250,000 jointly) – top rates are now 23.8% for long-term capital gains and qualified dividends and 40.8% for other taxable investment income, and state income taxes are on top of that.
Many families are wondering how they should adapt to these important tax changes. Some of families may even be beneficiaries of irrevocable trusts adversely impacted by the new income tax changes.
There are new solutions to these issues that can vastly improve the INCOME tax efficiency of a revocable trusts after a death, and/or the tax efficiency of existing irrevocable trusts. These solutions can ensure your beneficiaries receive the maximum “step up” in basis, and avoid “step downs” in basis – saving the family capital gains and income tax. In addition, these solutions can ensure avoidance of income being trapped in trusts at higher tax brackets and even allow shifting of income to family members or even charities who may be in lower tax brackets. This can all be done while maximizing the asset protection for the assets from creditors, in-laws and others.
These various changes may ultimately save your family hundreds of thousands dollars in income tax – if not more.
Attorneys have taken to calling this an Optimal Basis Increase and Income Tax Efficiency Trust, or “OBIT” for short. While it is nothing radically new – merely various additional clauses added to your existing revocable trust (preexisting irrevocable trusts may require additional issues to be addressed), the innovative structuring and research behind it is substantial and should only be attempted by a specialist in this area of law.
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