Chapter 5. Increase of Basis

• Author: Jerold I. Horn
• Pages: 239-239

5

Increase of Basis

If appreciated assets are held in a shelter-style trust under circumstances in

which no shelter is necessary, a beneficiary might wish to forgo the shelter

and instead seek an increase in basis by including some or all of the trust

estate in his or her gross estate for purposes of determining the United

States estate tax payable because of his or her death. See Code § 1014. A

number of techniques appear available. As a first technique, the settlor can

permit an independent trustee to grant the beneficiary a general power to

appoint by will, similar to the technique that is discussed at length at

Subpart 3 of Part Five of Chapter 3, not confined, however, to property with

respect to which a generation-skipping transfer would occur if the

beneficiary were not to have any power to appoint by will. An apparent risk

is that a general power of appointment might exist even if no independent

trustee has exercised the ability to grant the power. See Code § 2041(b)(1).

A second technique is the same as the first, except, as in Subpart 3 of Part

Five of Chapter 3, any grant of a general power is limited to property with

respect to which a generation-skipping transfer would occur if the

beneficiary were not to have any power to appoint by will. The second

technique is not available if the beneficiary is assigned to the same

generation as the transferor. As a third technique, a beneficiary who has a

nongeneral power to appoint by will might exercise the power to create a

presently exercisable general power of appointment that can extend the

period of the Rule Against Perpetuities with respect to remoteness of

vesting or suspension of the power of alienation. This subject is treated at

length in Chapter 19. A fourth technique is that an independent trustee can

exercise discretion, unlimited by any standard, to distribute trust property to

the beneficiary with the effect of including the property in the gross estate

of the beneficiary. Many of the forms in this book exemplify the ability of

an independent trustee to do this.