What Can We Learn From Salma Hayek’s Trust Setup? Understanding Irrevocable Trusts and Tax Implications

What Can We Learn From Salma Hayek?

Actress (and my doppelganger?) Salma Hayek and her billionaire French husband, François-Henri Pinault, have established a trust for their only daughter together, Valentina Paloma Pinault. The trust allegedly holds $12M and includes some real property.

We can conclude that Hayek and Pinault (as the CEO of a company that owns Gucci, Yves St. Laurent and other top-flight fashion lines) established this trust as an irrevocable trust so that the assets in the trust will not count towards their taxable estate tax. The idea is that if the trust cannot be revoked (or amended) and the assets not managed by Hayek or Pinault, the assets are not considered part of their estate and will not count towards the allowable estate tax amount, currently set at $13M and change, per person.

With estate tax, when someone passes away and they have more than the $13M+ allowed, anything over that amount is taxed. Anything less is free and clear. Irrevocable trusts are also useful tools in Medicaid planning where families want to protect “spending-down” of their assets in order to qualify for government benefits.

What We Learn from Hayek’s Alleged Irrevocable Trust

We can learn all about capital gains taxes through an irrevocable trust. But first, we need to know what capital gains taxes are. Historically, assets that are disposed of during an individual’s lifetime are subject to capital gains taxes on the increase in value of that asset over time.

If you buy a property for $100K (the cost basis) and then sell for $250K, there is a capital gains tax on that $150K appreciation. That’s capital gains tax. However, when assets pass at the death, the beneficiaries enjoy what we call a step-up in basis, so the assets are inherited with the cost basis as of the date of death, which is much closer to the current fair market value, and not the value at the time the asset was actually purchased.

This reduces, if not totally eliminates any capital gains, and so no taxes become due. Assets that were transferred into a grantor revocable trust for sure get the step-up in basis and until recently, assets in an irrevocable trust were also getting the step-up in basis, UNTIL RECENTLY.

In March of 2023, the IRS issued Revenue Ruling 2023-2 that property held in an irrevocable trust that is not included in the taxable estate at death will not receive a step-up in basis any longer. Yikes! Fear not, your revocable trusts (that’s what most of you have set up with me) will continue to enjoy the step-up in basis and capital gains taxes are not a concern for you. This new ruling is only for irrevocable trusts.

This new ruling will force accountants, financial planners, and attorneys to work together to see what’s more important to a client, reducing the estate tax or limiting the capital gains tax. More thought will need to go into the plans to see what tax is worth addressing as we can’t both anymore.

So there you have it, we learn that irrevocable trusts are now more complicated than ever before and we also learn that I may or may not resemble Salma Hayek, you let me know….