An upstream basis trust can be used to minimize capital gains on assets sold during your lifetime. This is done by providing an older family member (Mom, Dad or Grandpa) a power of appointment in your trust holding appreciated assets with low or no basis.
A general power of appointment (GPOA) empowers the holder of the power to give away or direct the distribution of your property upon your death. This “power of appointment” provides a step-up in the assets in the trust upon the power holder’s death.
You do not have to inform the power holder (Mom, Dad or Grandpa) that they hold this power. You can also limit the exercise of this power to require the prior written consent of another person who is not related to or subordinate to the power holder. The power itself can be somewhat limited, such as appointing assets to a creditor.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Greater care must be taken if the designated power holder lacks capacity when granted or given their power. If so, consider stating that an agent under a durable power of attorney or guardian could act. Note that this would typically mean that the agent is designated in a pre-existing valid durable power of attorney.
Here’s an example
Son buys an office building (or Apple stock) for $1 million. The building or stock is now worth $10 million. If sold, a capital gains tax of 20% to 33.3% might be owed. If held in trust granting Dad a GPOA and Dad dies, the income tax basis is increased to the fair market value as of the date of death. If the building or stock is sold at or around that date, there’s no tax on the capital gain, a tax savings of $2 million to $3.33 million. If the asset is not sold and subject to depreciation, such as a building, the depreciation is now recalculated with a basis of $10 million. This will provide a substantial tax savings even if the building is not sold.
This upstream basis trust was recently discussed at the 2024 Heckerling Institute on Estate Planning, which is one of the premier estate planning and tax planning educational events held nationally each year. We have been utilizing this technique for years. For more information about how this works, please see my article How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!
Related Content
- IRS Quietly Changed the Rules on Your Children’s Inheritance
- Eight Types of Trusts for Owners of High-Net-Worth Estates
- What Assets Should You Put (or Not Put) in Your Trust?
- Four Reasons You Don’t Need a (Revocable) Trust
- Four Reasons Retirees Need a (Revocable) Trust
-
December Fed Meeting: Live Updates and CommentaryThe December Fed meeting is one of the last key economic events of 2025, with Wall Street closely watching what Chair Powell & Co. will do about interest rates.
-
This Is Why Investors Shouldn't Romanticize BitcoinInvestors should treat bitcoin as the high-risk asset it is. A look at the data indicates a small portfolio allocation for most investors would be the safest.
-
I'm a Federal Benefits Pro: I Answer These 2 Questions a LotMany federal employees ask about rolling a TSP into an IRA and parsing options for survivor benefits, both especially critical topics.
-
Why Investors Shouldn't Romanticize Bitcoin, From a Financial Planner
Investors should treat bitcoin as the high-risk asset it is. A look at the data indicates a small portfolio allocation for most investors would be the safest.
-
I'm a Financial Pro Focused on Federal Benefits: These Are the 2 Questions I Answer a Lot
Many federal employees ask about rolling a TSP into an IRA and parsing options for survivor benefits, both especially critical topics.
-
Private Credit Can Be a Resilient Income Strategy for a Volatile Market: A Guide for Financial AdvisersAdvisers are increasingly turning to private credit such as asset-based and real estate lending for elevated yields and protection backed by tangible assets.
-
5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip UpThe five biggest RMD mistakes retirees make show that tax-smart retirement planning should start well before you hit the age your first RMD is due.
-
I'm a Wealth Adviser: My 4 Guiding Principles Could Help You Plan for Retirement Whether You Have $10,000 or $10 MillionRegardless of your net worth, you deserve a detailed retirement plan backed by a solid understanding of your finances.
-
A Retirement Triple Play: These 3 Tax Breaks Could Lower Your 2026 BillGood news for older taxpayers: Standard deductions are higher, there's a temporary 'bonus deduction' for older folks, and income thresholds have been raised.
-
If You're Retired or Soon-to-Be Retired, You Won't Want to Miss Out on These 3 OBBB Tax BreaksThe OBBB offers some tax advantages that are particularly beneficial for retirees and near-retirees. But they're available for only a limited time.
-
Waiting for Retirement to Give to Charity? Here Are 3 Reasons to Do It Now, From a Financial PlannerYou could wait until retirement, but making charitable giving part of your financial plan now could be far more beneficial for you and the causes you support.
