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Trust stepped up basis


Roberts

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I have a weird one. Lady in 1960 dies and her land is in a trust for her daughter. The daughter receives a stepped up basis in 1960.

In 2019 her daughter dies with the land still in the original trust and the granddaughter now inherits the property. Does the granddaughter also receive a stepped up basis? Seems to me she receives a stepped up basis only if her mom included the asset in her estate valuation. If including the farm would have generated an estate tax so it was excluded, the granddaughter doesn't receive a stepped up basis.

 

Is that wrong? It isn't a bypass trust because the daughter was the beneficiary and owned it completely and could have sold it for her benefit.

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Of course it depends on the terms of the trust, but it sounds as though the mom had the capacity to dispose of the land during her lifetime and end the trust.

Bottom line, if the assets in the trust would have been included in the mom's taxable estate, even if the mom didn't have an estate large enough to have to file a Form 706, the granddaughter gets a basis equal to the fair market value on the date of mom's death (Code Sec. 1014(a)(1)).  The value is not conclusive, but is a presumptive value that may be rebutted by clear and convincing evidence.

See https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances in the first part of the IRS answer to the question on the page.

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On 1/14/2020 at 6:32 AM, Roberts said:

her land is in a trust for her daughter. The daughter receives a stepped up basis in 1960.

So who actually took the stepped up basis, trust or daughter?  What form was income from the property and any related depreciation reported on, 1040 or 1041?

 

On 1/14/2020 at 6:32 AM, Roberts said:

If including the farm would have generated an estate tax so i it was excluded


That sounds like a decision was made not to include the property in the gross estate in order to avoid inheritance taxes???

If the decedent had beneficial ownership of the property (per 26 cfr 20.2033-1) it should have been included in her estate.

Beneficial ownership depends on facts and circumstances.  The amount of control is a factor. 

Was it by choice of the daughter to bequeath the property to grandchild, or was that determined by grandma will?

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