Did the tax laws regarding trusts significantly change?

Question

I saw a YouTube video come up that said something about how some of the tax incentives of trusts significantly changed in the US tax code. The video said it was changed very quickly in a way people wouldn't notice. This article I found has some more info but I was wondering if someone could explain the change to me a little better?

"In March, the IRS issued Revenue Ruling 2023-2, which had a substantial impact on estate planning, particularly where an irrevocable trust is involved. In the last decade or so, more families have begun utilizing irrevocable trusts to protect their assets from spend-down in order to qualify for government benefits, such as Medicaid and VA Aid and Attendance."

Answer 1

Rev. Rul. 2023-2 addresses intentionally defective grantor trusts (IDGTs), which are irrevocable trusts that are the grantor's for income tax purposes but not for estate tax purposes.

The issue pre-Rev. Rul. 2023-2 was confusion around whether assets in an IDGT would get a step-up in basis at the grantor's death. Some tax practitioners (and laypeople) would argue that the assets in an IDGT qualify for a step-up in basis at the grantor's death. Since revenue rulings are the IRS' interpretation of the tax code (Internal Revenue Code/IRC), statutes, regulations, treaties, etc., Rev. Rul. 2023-2 doesn't change the law, it just clarifies that no, assets in an IDGT do not enjoy a step-up in basis at the grantor's death.

Answer 2

To the best of my knowledge there was no change in laws. The RR clarifies the current laws. Transfer to an irrevocable trust is a gift and is covered by the gift tax, and as such should be exempt from estate tax which in turns means there's no step-up basis.

Trust taxation is a complex topic and there are tax advisers and attorneys who specifically focus on working in that area. The estate attorneys do not necessarily know it well.