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Revenue Ruling 2023-2: What it Means and What You Might Do

Do assets in an irrevocable grantor trust that are not included in the settlor’s estate qualify for an income tax basis step up on the death of the grantor? In 2002 Jonathan Blattmachr and Professor Mitchell Gans authored an article analyzing this matter. This issue seems to stir up as many opinions and strong emotional reactions today as it did when it was first published. After several powerful Senators wrote a letter to Janet Yellin, the IRS issued Revenue Ruling 2023-2 stating that, in the opinion of the Service there is no basis step up for assets in a grantor trust not included in the settlor’s estate. The IRS indicated that Code Section 1014 is inapplicable because there is no estate-tax inclusion and it is not a bequest under state law. While you might have heard strong opinions pro and con on this point, what does the law actually say?

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