Step Up Basis

[Ringers]

Client's father set up a trust with my client's mother as beneficiary.  When he died, she received assets of trust (stocks) with a step-up in basis to his date of death with stocks remaining in the trust.  She dies with my client as beneficiary of the trust.  The broker send out the statements to my client with sales not marked up to mothere's date of death.  I had my client quesiton him and his reply was that the mother had received the step up in basis and so he could not get a step up basis because only one was allowed.  I had never heard of this before.  Am I missing something or is the broker just repeating something he heard from his barber?  

[rfassett]

The trust became irrevocable on the father's death is what I am hearing here.  That being the case, there would be no step up at time of mother's death.  The stock, at mother's death, was actually owned by the irrevocable trust thereby not allowing a step up in basis on her death.

[Lee B]

I don't work much with trusts and estates, but I do have general discussions about the issues.

So once a trust becomes irrevocable, the assets held in the trust gets no stepup with the second death ?

 

[Lion EA]

When a trust is irrevocable, it is its own person/entity.  Someone else's death does not change things inside a trust.  If it had always been irrevocable, there never would be any steps-up/down.

If the trust was revocable until the father died, then the trust "was" still the father and not a separate entity, reported on father's tax return, until the DOD.  So, when the father no longer existed, the trust became irrevocable and all the assets stepped up/down as they passed from the father/revocable trust into the separate entity/irrevocable trust.

Only the beneficiary changed when the mother died.  No assets of the irrevocable trust moved out of the trust/moved to the son; they remain in the irrevocable trust.  The trust did not die.

You will need to read the trust document, though.  There are as many ways to set up a trust/intertwining trusts as there are trusts.

[Ringers]

Thanks all for the valuable input.  I have asked my client to get me a copy of the trust document.  Hopefully, the father's trust was finalized and the mother had the stocks transferred to her own account, which she then put into a new revocable trust which became irrevocable at her death.  Under those conditions, I believe there would be an additional step up in basis to date of mother's death.

[BulldogTom]

21 hours ago, cbslee said:

I don't work much with trusts and estates, but I do have general discussions about the issues.

The most important thing to know about preparing trust returns is this:

YOU CANNOT PREPARE A TRUST RETURN WITHOUT HAVING A COPY OF THE TRUST DOCUMENT.

This includes knowing what all the assets of the trust are, and seeing title to them, so that you know what goes on the trust return and what goes on the final return of the decedent. 

Never take the word of the family on what is and what is not in the trust.  They usually don't know and they have probably never read the trust document or seen the title on any of the assets.

Tom
Newark, CA

[SaraEA]

You do need the trust doc.  This could have been set up as an A trust and B trust.  These were popular before the MFJ estate exemption went to over $10m and there was portability of the unused exemption of one spouse.  In one scenario, half the assets of the joint A trust went into the spouse's B trust with step-up basis.  On B's death, the beneficiaries get step-up on the whole thing.  Have fun.......