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To get the step-up in basis, the assets in the irrevocable trust now must be included in the taxable estate at the time of the grantor’s death. That’s the bad news.
A charitable remainder unitrust (known as a "CRUT") is an irrevocable trust created under the authority of the United States Internal Revenue Code § 664 [1] ("Code"). This special, irrevocable trust has two primary characteristics: (1) Once established, the CRUT distributes a fixed percentage of the value of its assets (on an annual or more frequent basis) to a non-charitable beneficiary ...
An irrevocable trust takes away your control of your assets. But if you have money or property you plan to hold onto, specifically for your heirs, an irrevocable trust can help protect those assets.
Therefore, if the taxpayer's sister were to sell the house for $100,000, she would not have to pay any income tax because the sales price ($100,000) minus her stepped-up basis ($100,000) would be a capital-gain income of zero. See the explanation under "Rationale for stepped-up basis" (below) for an explanation of why the Tax Code would do this.
By retaining a special power of appointment, the settlor should receive the following benefits: (1) The settlor can transfer unlimited amounts to the trust at any time without gift tax consequences, (2) the assets of the trust are entitled to a step-up in basis upon the settlor's death, (3) the settlor can pay the income taxes on the earnings ...
But once established, an irrevocable trust can be difficult to amend or cancel, and it requires the grantor to give up control of the assets, a step that many individuals may be unwilling to take.
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