I hold title to surface and minerals in Andrews County. This is separate property. I am considering conveying these interests to a trust for the benefit of me during my lifetime, then to my son and then to my grandson. Will my son get the step up in basis when I die? Is this a good idea, or should I transfer this property by will?
I think there are many kinds of trusts, and I have heard from folks who have trusts adminitered by banks or other institutions that have not worked out well. I suggest that whatever you do that you maintain control of your assets. It could even be that you could give the assets to your son and retain a life estate. If you are thinking of an irrevocable trust administered by someone else, such as a bank, there are some people here who have gone that route or have inherited it and the trustees raise the fees and ignore business opportunities and there won't be a thing you or your heirs can do about it. If this comes to pass and you sue the trustee, the trustee will hire a lawyer with money from the trust to fight you. There is a member here, chris wilson who shared his experience, find his home page and scroll down to his earliest posts for an example. You have to maintain control because if you don't, those you hired to serve you can decide to serve themselves. Good luck.
My understanding is that as long as your estate isn't over the "Estate Tax Exclusion" they get a stepped up basis. The exclusion is $5.12 million until 2013 and then it drops to $1 million. My guess is it won't stay as low as $1 million, but I suggest planning for the worst when it comes to taxes.
The past two blogs both address estate taxes. You can find them by clicking "Blog" above or HERE
I like the idea of conveying to the son while reserving a life estate for yourself, unless you are trying to reduce your income in order to qualify for some kind of government benefit, in which case a life estate would not help you, but the trust still would, especially if it's irrevocable. Also, another reason to do the trust is if you do not want the son to ever own the property in fee simple, in which case you could not dictate to him that he must eventually convey it to your grandson. With a trust, you should be able to have that control into the third generation. Contact a lawyer to discuss this issue. You can probably get all your questions answered for about $150-$200.