Another tax question...

["Roger"]

These matters are in the hands of an accountant, so I will eventually find out via that route, but just trying to anticipate what to expect...

Using hypothetical numbers throughout: My father died about ten years ago and my mother last year. My father had a trust with say $100,000 in it and my mother had a separate trust with $100,000. A separate tax form was filed for my father's trust in each of the intervening years. My mother and brother were cotrustees for my father's trust, but neither received any income from the trust. With the death of my mother, both trusts were dissolved.

The cost basis for anything in my mother's trust will be the value of the assets when she died. What will be the cost basis for the assets in my father's trust - the value of the assets when he died, or, the value when my mother died?

 

[nightnurse613]

I hope you get an answer on this. My understanding is that the basis occurs at death however, unless it exceeds the exemption, there are no taxes due. We have a marital trust where everything passes to me when my husband dies (or at least that's what I was told!! ) And I have a trust that passes to my children when I'm gone)-unless it happens the other way around!! While it's unlikely we'll sell any real estate - unless my husband finds out about another timeshare I'm thinking of buying -:ignore: we do buy cars from time to time (forgetting to put them in the trust). Any way, this is a fascinating subject which I know nothing about so, I'm looking forward to an answer!

 

[Talent312]

I'm sure that someone far more knowledgable than I will come along with a more informed reply, but gonn'a take a stab at it, not becuz I know the answer, but 'cuz I know just enuff to be dangerous.

First, your mother's death has nothing to do with it. You father's trust was separate property. Secondly, the final distribution is generally not a taxable event unless the trust liquidates assets to make the distribution.

From what I understand, when a trust distributes assets in-kind, you take the trust's basis in those assets. You do not get a step-up for unrealized gains, just 'cuz you are taking a piece of the principal. But you will only be subject to a capital-gains tax on those assets, if you liquidate them.

[Just a wild guess.]

 

[Conan]

And the answer is . . . as long as the (first) trust was includible in your father's estate (even if there was no estate tax to pay on account of available exemptions or the marital deduction) and not included again in your mother's estate (which is unlikely), trust assets that he owned at death took a new income tax basis equal to their value at his date of death.

Of course, over the years many of those assets may have been sold (and their capital gains or losses would have been determined against their date-of-death basis). But unsold assets continue to carry that date of death value.

It's all in Internal Revenue Code Section 1014
http://www.law.cornell.edu/uscode/26/usc_sec_26_00001014----000-.html