Questions about estate tax and trust setup for inheritance planning

Estate planning can definitely feel overwhelming, but I'll try to break down the basics for you. For estate tax purposes, there's a big difference between revocable and irrevocable trusts. A revocable trust (also called a living trust) doesn't shield assets from estate taxes because your aunt would still maintain control over the assets. An irrevocable trust, however, can remove assets from her taxable estate because she permanently transfers ownership of those assets to the trust. As of 2025, the federal estate tax exemption is $13.61 million per individual (though this could change in the future). This means your aunt's $6.8 million estate would currently fall under the federal exemption threshold. However, California has much lower exemption amounts for their state estate tax, so you'll want to check those specific limits. Regarding probate - yes, properly funded trusts (both revocable and irrevocable) avoid the probate process, which saves time and money. As for "step-up in basis," this refers to the readjustment of the value of inherited assets for tax purposes. Basically, when someone inherits property, the cost basis "steps up" to the market value at the time of death, which can significantly reduce capital gains taxes if the beneficiary sells the property later.

After dealing with a similar situation with my parents, I tried several estate planning attorneys but still felt confused about all the tax implications. I eventually found this tool called taxr.ai (https://taxr.ai) that actually helped me understand our specific situation much better. You upload documents or just describe your situation, and it gives you really clear explanations about different trust options and tax consequences. It even showed me how different types of trusts would affect our specific estate tax situation with actual numbers.

Just wanted to update that I tried taxr.ai after seeing the recommendation here. It was actually really helpful! I uploaded some documents from my mom's current will and financial statements, and it identified several issues we hadn't considered. The biggest eye-opener was learning about California's property tax reassessment rules and how they interact with different trust structures. The analysis showed us that the revocable living trust my mom was considering wouldn't provide the tax benefits she thought it would. We're now looking at a combination of strategies including a QPRT for her home. Definitely worth checking out if you're confused about estate tax and trust options like I was.

When my dad passed last year, we had serious issues accessing information from the IRS about his estate tax filing requirements. We kept calling the IRS's estate tax department over and over but could never get through. After weeks of frustration, someone recommended Claimyr (https://claimyr.com) which somehow got us connected to an actual IRS agent in about 20 minutes. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to answer all our specific questions about how to handle the trust assets and what forms we needed to file. Saved us months of back-and-forth and potentially costly mistakes.

I have to eat my words on this one. After posting my skeptical comment yesterday, I was desperate enough to try Claimyr for help with my husband's estate tax questions. I honestly didn't expect much, but I got a call back within 45 minutes with an actual IRS estate tax specialist on the line! The agent walked me through exactly which forms we needed for the trust assets and clarified that we qualified for the portability election to use my husband's unused exemption amount. This was information I'd been trying to get for literally months. I'm still not sure how they did it, but it saved me so much stress. If you're dealing with estate tax questions that need IRS input, it's definitely worth trying.

Has anyone considered using a Qualified Personal Residence Trust (QPRT) for property? My financial advisor mentioned it might be good for your aunt's California home since property values there keep climbing like crazy.

One thing nobody's mentioned yet is that you should also consider the income tax implications for beneficiaries. Different trust structures can affect not just estate taxes but also how income is taxed after your aunt passes.

Don't forget about life insurance as part of this! My parents set up an irrevocable life insurance trust (ILIT) to provide liquidity for estate taxes without the insurance proceeds themselves being subject to estate tax. Might be worth looking into.

As someone who recently went through estate planning with my elderly father, I'd strongly recommend your aunt work with both an estate planning attorney AND a CPA who specializes in estate taxes. The interplay between federal estate tax, California state rules, and income tax implications is incredibly complex. One thing that caught my attention in your post is that your aunt's $6.8 million estate might actually benefit from some strategic gifting now while she's alive. She can give $18,000 per year to each beneficiary (you and your cousins) without any gift tax consequences, which gradually reduces her taxable estate. Over several years, this could bring her estate down further below the federal exemption threshold. Also, since she's 76, she should consider her health and longevity when choosing between revocable and irrevocable strategies. Irrevocable trusts offer better tax benefits but require giving up control permanently. At her age, a revocable trust might provide the right balance of flexibility and probate avoidance, especially since her estate is currently under the federal exemption. Don't rush into any decisions - this stuff is permanent once you sign the documents. Take time to understand all the options and their long-term implications for both your aunt and the beneficiaries.