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« Are you busy? | Main | Can A Grantor Be Trustee Of His Irrevocable Trust? »

10/19/2015

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Matt

Under the FIT, you state that the beneficiaries will inherit the assets of the trust with a step-up in basis. My understanding is that in order for assets to receive a step-up in basis on an individual's death, they must be included in their estate. If so, and they are included in the Grantor's estate at his/her death, wouldn't these assets then be subject to Estate Recovery under Medicaid? Any advice would be greatly appreciated. Thank you!

Roslyn Drotar

Hi Matt! We've been off at our big event and just getting back to you on this!

In order to answer your question, we must look at the FIT both from a taxation perspective and from an inheritance perspective.

Because the FIT is a grantor trust, upon the passing of the surviving spouse/grantor, the trust assets are included in the surviving spouse’s gross estate for tax purposes. This is important, because the children inheriting the trust assets will take them at a cost basis equal to the value of the assets at the date of the surviving spouse’s death.

The above rule is for tax purposes only. The assets remain in the trust and distribute to the beneficiaries through the trust instrument, thereby meeting Medicaid qualification requirements and eliminating any estate recovery.

The IPUG essentially offers our clients the best of both worlds when contemplating Medicaid eligibility/estate recovery and qualifying for the step up in basis.

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