No. An Upstream Trust works by using an older relative's unused estate tax exemption, the allowance almost everyone dies without spending. What it needs is an asset that has grown a long way from what you paid for it, and a parent or older relative whose own estate is comfortably under the federal exemption. Wealthy parents are the hard case, not the easy one.
Most trust planning is sold to families who are worried about their own estate tax. This is the opposite. It depends on the older generation having an allowance they will never need, which is exactly what a modest estate has and a large one does not.
Their estate will owe no federal estate tax either way, so almost the whole exemption is going spare. That is the room this strategy borrows.
Their own estate already needs the exemption. There is little or nothing spare, and the planning has to take a different shape entirely.
Company stock, options exercised long ago, or shares from a sale that never got diversified. The tax bill is why it is still sitting there.
Bought decades ago, worth several times that now, and a sale means capital gains plus depreciation recapture.
The basis is near nothing because you built it. The planning has to happen before a buyer appears.
A few thousand dollars that became a few hundred thousand, with no way out that does not involve a large cheque to the IRS.
Someone who bought $150,000 of stock years ago and now holds $900,000 of it. Not a family office. A long holding in a normal account.
At Washington rates, a combined 30.8% on a gain of $750,000. Illustrative: your own number depends on your basis, your state and your relative's circumstances. The calculator on the home page runs your figures.
No. What the strategy needs is an asset that has grown a long way from what you paid, and an older relative whose own estate is comfortably under the federal exemption. Those two things are common in ordinary families and, as it happens, less common in very rich ones.
Because the strategy uses the exemption they are not going to use themselves. Every person can pass a certain amount free of federal estate tax, currently around $15 million. A parent whose estate is nowhere near that has almost all of it going spare, and it expires unused at their death. A parent worth $30 million has none to spare.
Large enough that the tax it erases clearly outweighs the cost and effort of running a trust for years. That depends on the size of the gain and on how long the trust is likely to run before the older relative's death, which is a conversation rather than a number on a page.
No. They are never asked for money, their estate pays nothing, and their own will is unaffected. They hold a restricted power on paper over assets in your trust, and it only has any effect at their death. See Question 18 in Upstream University.
A grandparent, aunt or uncle can serve the same role. What matters is that the person is older than you, has room under their own exemption, and is someone you are willing to include as a beneficiary of your trust.
Every rule behind this, question by question: Upstream University.
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