Fact check: Can children still avoid paying capital gains tax on inherited property through trusts under current law?

1. Summary of the results

Based on the analyses provided, the ability for children to avoid capital gains tax on inherited property through trusts under current law is undergoing significant changes due to recent IRS rule modifications and proposed legislative reforms.

Current Trust Mechanisms Still Available:

• Multiple strategies for minimizing capital gains tax on inherited property remain viable, including selling property immediately, converting it to a primary residence, utilizing 1031 exchanges, setting up trusts, and charitable donations ^[1]
• Various types of trusts continue to offer tax planning opportunities for inheritance purposes ^[2]

Critical IRS Rule Changes:

• A new IRS rule change has fundamentally altered how the step-up in basis applies to assets held in irrevocable trusts ^[3]
• Under the new rule, assets must be included in the taxable estate at the time of the grantor's death to qualify for the step-up in basis ^[3]
• This change may affect how assets are passed to heirs and could impact traditional trust-based tax avoidance strategies ^[3]

Proposed Legislative Changes:

• Trump administration tax proposals include potential elimination of the step-up in basis and repeal of the federal estate tax, which could have widespread impact on how families pass down assets ^[4]

2. Missing context/alternative viewpoints

The original question lacks several crucial pieces of context that significantly impact the answer:

State-Specific Variations:

• California has no state inheritance tax, but federal estate taxes and other implications still apply ^[5]
• California Proposition 19 has created additional considerations for property tax transfers and exemptions, affecting estate planning strategies involving real property ^[6]

Timeline Considerations:

• The analyses reference recent IRS rule changes that have already altered the landscape, but the sources don't provide specific effective dates ^[3]
• Proposed changes under different administrations could further modify these rules, creating uncertainty for long-term planning ^[4]

Trust Type Distinctions:

• The question doesn't specify between revocable and irrevocable trusts, which have different tax implications under current and proposed rules ^[3]
• Different trust structures may be affected differently by the new IRS rules ^[2]

3. Potential misinformation/bias in the original statement

The original question contains an implicit assumption that may no longer be accurate under current law:

Outdated Premise:

• The question assumes that children can "still" avoid capital gains tax through trusts, suggesting this was previously possible, but recent IRS rule changes have fundamentally altered this landscape ^[3]
• The word "still" implies continuity of previous tax avoidance strategies that may no longer be as effective due to new requirements for step-up in basis qualification ^[3]

Oversimplification:

• The question treats trust-based tax avoidance as a binary possibility, when the reality involves complex interactions between federal estate taxes, state laws, and recent regulatory changes ^{[4] [5] [6]}
• It fails to acknowledge that multiple strategies exist beyond trusts for minimizing capital gains tax on inherited property ^[1]

Missing Regulatory Context:

• The question doesn't account for the dynamic nature of tax law, particularly the recent IRS modifications that have changed fundamental assumptions about trust-based inheritance planning ^[3]