Power of Appointment Support Trust Planning
Minimize the Pain of Capital Gain
What is Power of Appointment Support Trust “POAST” Planning? It is a technique to avoid paying capital gains tax on low basis assets benefiting you during your lifetime by using your parents’, otherwise unused, estate tax exemption upon their passing.
Does POAST Planning Apply to You and Your Family?
- Do you and your spouse have low tax basis assets (i.e., closely held stock, LLC units, mutual funds, marketable securities or real estate)?
- Are you hesitant to sell due to capital gains tax consequences?
- Do you have an elderly or physically unhealthy parent, or other relative, who is creditor free?
- Does this relative have a taxable estate worth less than $4M?
- Do you have a good personal relationship with this relative?
If the answer to all five of these questions is “yes,” then an accelerated step-up in basis can be achieved during your lifetime by harvesting your relative’s unused estate tax exemption.
How does POAST planning work?: Assume you have low tax basis assets and your elderly father is creditor-free with an estate valued less than his current estate tax exemptions (2018 federal exemption is $11.2M and the Illinois exemption is $4M). Through POAST planning, your spouse can create a trust, for the benefit of you and/or your children, owning those low tax basis assets. However, those low tax basis assets will also be intentionally include in your father’s taxable estate. If your father passes away before you, and your father’s taxable estate, including the low tax basis assets, is less than his applicable state and federal estate tax exemptions, no estate taxes will be payable at your father’s death. Most importantly, the low tax basis assets will be stepped-up to their fair market value for purposes of capital gains planning. Therefore, if the stepped-up assets are sold on the day after your father’s passing, there will be no capital gains tax. The capital gains tax savings can be tremendous!
How Do You Implement POAST Planning?: If you believe that POAST planning can benefit your situation, please call Andrew Kelleher, David Buckley, Bob Holland or Linda Fine at (847) 382-9130