How Revenue Ruling 2023-2 Impacts Irrevocable Trusts in Florida Estate Planning

Trusts are foundational estate planning strategies for Florida residents and are becoming more popular as economic shifts and the aging population highlight unique estate planning goals. An irrevocable trust is one practical estate planning strategy for excluding assets from an estate’s taxable value, safeguarding wealth, and helping to meet asset threshold limits for government benefits like Medicaid.

The Tax Advisor’s article, “Rul. 2023-2’s impact on estate plans,” details the impacts on estate planning strategies, particularly irrevocable trusts. We examine why Revenue Ruling 2023-2 matters in Jacksonville estate planning, what it says now, and how it affects your estate planning strategy in Jacksonville for passing wealth to loved ones.

Why Does Revenue Ruling 2023-2 Matter in Jacksonville Estate Planning?

Capital gains taxes are the heart of Revenue Ruling 2023-2 changes. Individuals pay taxes on the difference between an asset’s purchase price and a higher sell price as that asset’s value grows over time. The original purchase price is their cost basis or non-taxed value. Amounts over the cost basis are taxed as a capital gain. Assets include property, investments, cars, and anything else that provides income or profit. If you create or update an estate plan, Revenue Ruling 2023-2 may change your estate planning or updates in 2024. Work with an experienced estate planning attorney at Legacy Planning Law Group to find the right strategies to pass your legacy on.

What Does Revenue Ruling 2023-2 Say About Irrevocable Trusts?

The new IRS Revenue Ruling says that assets in an irrevocable trust are not part of the owner’s taxable estate at their death and are not eligible for the fair market valuation when transferred to an heir. Once an heir sells the inherited asset, capital gains taxes are calculated using the value when the deceased person purchased it. The cost basis for an asset’s beneficiaries significantly impacts capital gains taxes once they sell. Capital gains from the decedent’s date of purchase will be much higher than the fair market value on the date of death.

Learn more about the concepts of basis, capital gains taxes, and how these impact heirs who sell an inherited asset in the video below from Estate Planning Lawyer Bill O’Leary:

Prior to the IRS Revenue Ruling 2023-2, an irrevocable trust typically gave heirs a break by calculating an inherited asset’s capital gains from the fair market value at the owner’s death. That tax break has changed.

How Are Jacksonville Estate Planning Strategies Impacted?

Revenue Ruling 2023-2 impacts Florida beneficiaries inheriting assets, by calculating taxes from the date of purchase. This calculation is considered a “step-down,” meaning a lower cost base and higher capital gains. 

Individuals and families creating or updating an estate plan might look for irrevocable trust alternatives to minimize taxes to their beneficiaries. Now that the cost basis for inherited assets is calculated based on the deceased’s date of purchase, an irrevocable trust might not be the right estate planning strategy. Read more about how inheritance can affect heirs in our article, Are You Considering the Impact of Your Estate Plan on Your Heirs?

Jacksonville residents can work with the experienced estate planning team at Legacy Planning Law Group to explore trusts and other legacy strategies.

Revenue Ruling 2023-2 and Irrevocable Trusts Takeaways:

• Revenue Ruling 2023-2: Learn more about Revenue Ruling 2023-2 Rule and irrevocable trusts.
• Irrevocable Trusts: Talk with an experienced estate planning attorney in Jacksonville to explore irrevocable trusts and other strategies to pass wealth to heirs.
• Estate Plans: Create or update your estate plan if Revenue Ruling 2023-2 impacts your goals.

Conclusion

Revenue Ruling 2023-2 raises questions for estate planning in 2024. While it may seem like irrevocable trusts could lead to additional taxes for beneficiaries, the reality is more nuanced. If you’re interested in how trusts can benefit your legacy and goals for your heirs, consult with Legacy Planning Law Group for clarity and guidance on estate planning. Schedule a discovery call with our team.

Reference: The Tax Advisor (Nov. 1, 2023) “Rev. Rul. 2023-2’s Impact on Estate Plans.”