More Basis Management

January 30, 2014. As an interesting aside, another method gaining traction as a planning technique in basis and income tax management is the Optimal Basis Increase Trust, or we can call it the OBIT, forwarded by Edward P. Moore III. The premise is very intriguing, and involves, like the Delaware Tax Trap, powers of appointment. Two in fact, a general power and a limited power. It is designed so that the trust gives a general power of appointment to the surviving spouse only over those assets that have a fair market value in excess of their basis. Only those assets are included in the estate of the surviving spouse at death and only those assets receive a basis increase. Obviously, it is a moving standard, and the applicable assets will change over time. The limited power of appointment is given to the remaining assets so that they are not included in the surviving spouse’s estate. As these will be assets that have likely declined in value, by not being included in the estate they will not lose valuable basis.

The obvious benefit of the plan is that the estate planner does not have to play the role of oracle when it comes to asset appreciation. It avoids the alternatives whereby the assets are locked away in a trust, receiving no basis increase if there has been appreciation, or giving the assets outright to the surviving spouse where the assets have a chance to lose basis if their fair market value had declined. If there is a downside, it is because this is a recent movement and therefore an untested one. However, in a planning environment where the exemption is so high and our actions no longer track just the federal estate tax, the OBIT represents a kind of thinking we need to engage in if we are to do right by our clients. For more information on Goosmann Trust Law Counsel visit our website, email info@goosmannlaw.com or call 712.226.4000.