Utilizing Upstream Basis Trusts with General Power of Appointment (GPOA)
Considerations for Delegating Authority
According to Kiplinger, by creating an upstream basis trusts with a general power of appointment (GPOA) people can lower capital gains taxes on assets sold while they’re alive. The GPOA lets an older family member decide how trust assets are divided after the trust holder dies. This leads to a step-up in the assets’ basis in the trust which could mean lower taxes when the assets are sold. The person with the power might not know they have it, and there could be rules on how they can use it like needing permission from someone else.
When delegating authority to someone, it’s crucial to ensure they are capable of handling it effectively. If the chosen individual lacks the capacity to fulfill their role, it may be necessary to designate an agent under a durable power of attorney or appoint a guardian. This typically involves selecting an agent through an existing and valid durable power of attorney to represent the incapacitated individual. Assigning such responsibilities should be approached with careful consideration to ensure proper representation and management of affairs.
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Maximizing Wealth: Insights from the 2024 Heckerling Institute on Upstream Basis Trusts
Let’s say a son invests $1 million in an office building or Apple stock and it grows to $10 million. If he sells it, he might have to pay a capital gains tax of 20% to 33.3%. But if the asset is in a trust where the father has control and he passes away, the tax basis goes up to the asset’s value when he died. If the son sells it then there’s no tax on the gain which could save millions in taxes. Even if he keeps the asset and it depreciates like a building, he still saves a lot in taxes because of the higher basis.
The 2024 Heckerling Institute on Estate Planning, a respected educational event in the field highlighted a strategy known as an upstream basis trusts. This technique has garnered attention for its potential benefits in estate planning. Notably, we had already been employing this approach for years before its discussion at the Heckerling Institute. The event likely served to reaffirm the efficacy and relevance of our existing practices in estate planning. As a result, our continued utilization of the upstream basis trusts strategy reflects our commitment to staying informed about and implementing effective estate planning techniques.