Basis step-up Question

[artp]

H & W owned several farm parcels In IL (not a community property state) which were inherited by their 3 children. H died in 1982. W died in 2000. In 1982 per H’s will 50% interest in parcel A was transferred to his son, the other 50% went into a trust with an income only benefit to W for her life and remainder interest to each of the children as 1/3 undivided interest in the land. Trust held title to the land until W died and the children inherited. While the parcel was in the trust the children could not sell, convey, encumber or do anything with the land until M passed.

Question 1. At what time does the step-up in basis occur? In 1982 when title passed to the trust or 2000 when effective ownership was passed to the children?

Also in 1982 per H’s will 50% interest in parcel B went directly to W with the other 50% going into the same trust as above with the same provisions. On W’s death in 2000 her 50% went to the children.

Question2. At what time does the step-up in basis occur for parcel B?

For the 50% interest that went into the trust-1982 or 2000?

For the 50% interest that went to W and then to the children 2000 ?

My take for question 1 is that the step-up occurred in 1982 since title transferred at that time from H to the trust. A step-up happens at the decedent’s date of death even though the children do not have effective control of the property until W passes.

Same answer for question 2 for the 50% that went into the trust. The other 50% that was inherited from W would get a step-up in 2000.

The two daughters sold their interest in both parcels to their brother in 2009. So it would appear that they would have the following:

For parcel A basis from 1982 for their share of the 50% from via the trust

For parcel B basis from 1982 for their share of the 50% interest via the trust; from 2000 for their share of the 50% interest from W

Do you agree? Anything that I am missing here?

[OldJack]

>>Question 1. At what time does the step-up in basis occur? In 1982 when title passed to the trust or 2000 when effective ownership was passed to the children?<<

All step-up for everyone on all property is on the date of death of husband in 1982.

[artp]

OldJack,

Just want to clarify my understanding of your response. Are you saying there is no separate step-up for the portion of the property that passed from W to the children when she passed away in 2000?

[fredazcpa]

OldJack,

Just want to clarify my understanding of your response. Are you saying there is no separate step-up for the portion of the property that passed from W to the children when she passed away in 2000?

the 50% of parcel B that went to W, would get another step up in 2000 when W passed

[OldJack]

>>Trust held title to the land until W died and the children inherited<<

The trust received a step-up at creation with the children as remainder beneficiaries. Thus, it appears to me that the children inherited with the trust tax step-up basis and would not get another step-up for distribution after W died.

[artp]

>>Trust held title to the land until W died and the children inherited<<

The trust received a step-up at creation with the children as remainder beneficiaries. Thus, it appears to me that the children inherited with the trust tax step-up basis and would not get another step-up for distribution after W died.

I guess I did not clearly state the facts. I am talking about the 50% interest that W had in her name when H died in 1982. That 50% went to the children from W at her death in 2000. That is where the 2nd step-up issue came from.

[artp]

the 50% of parcel B that went to W, would get another step up in 2000 when W passed

Thanks for your replies. In the heat of tax season the brain cells sometimes get overloaded and I need some feedback from the people on this board.

[OldJack]

>> the other 50% went into a trust with an income only benefit to W for her life and remainder interest to each of the children as 1/3 undivided interest in the land<<

This is the 50% I am talking about. This trust got a step-up at creation and it is not in W's estate to pass to anyone with a step-up. W only has an income benefit.

[jainen]

>>On W’s death in 2000 her 50% [in parcel B] went to the children.<<

Why?

[artp]

>>On W’s death in 2000 her 50% [in parcel B] went to the children.<<

Why?

Her will provided that her interest went to the children upon her death. Or is there somethng I am missing in your response?

[jlewis]

What kind of trust? If revocable, then when wife died it would have been includable in her estate at FMV which then would be basis for disposing of property?

[jainen]

>>is there something I am missing in your response? <<

My response was missing almost everything. Why are you asking this question? It kind of sounds like you are saying W's share of property B was designated for the kids by action of the 1982 will and/or trust, rather than W's 2000 will. If not, why would there still be unresolved questions so many years later?

[OldJack]

What kind of trust? If revocable, then when wife died it would have been includable in her estate at FMV which then would be basis for disposing of property?

Husband died and any trust he created becomes irrevocable.

[jklcpa]

The original posting was confusing to me, so I chose not to answer. Now, I *think* was OP is saying is that husband's 50% ownership when into the trust where the wife had the right to income from his share during her lifetime, and she (wife) retained her own 50% ownership outside the trust.

In that scenario, wouldn't the husband's 50% get the stepped up basis at the time contributed to the trust in 1982. Then the 50% ownership of wife outside the trust gets stepped up at her death. If that is the case, shouldn't the children's basis in 100% of the property be this: 50% coming from the trust at the 1982 value and the 50% coming from mom at the 2000 value?

[artp]

The original posting was confusing to me, so I chose not to answer. Now, I *think* was OP is saying is that husband's 50% ownership when into the trust where the wife had the right to income from his share during her lifetime, and she (wife) retained her own 50% ownership outside the trust.

In that scenario, wouldn't the husband's 50% get the stepped up basis at the time contributed to the trust in 1982. Then the 50% ownership of wife outside the trust gets stepped up at her death. If that is the case, shouldn't the children's basis in 100% of the property be this: 50% coming from the trust at the 1982 value and the 50% coming from mom at the 2000 value?

Yes, that is what I was trying to convey in my original post.

[jainen]

>>that is what I was trying to convey in my original post<<

And is that what the decedent was trying to convey in his 1982 will? Apparently this scenario was not as complicated as I thought. Unwilling as always to give in to raw simplicity, I will only say now that the half of property B that went in to the trust might yet be included in the taxable estate of W and thereby receive a step up, if for example, she had been deemed an owner or contributed to the purchase in the past.

[jklcpa]

Unwilling as always to give in to raw simplicity

LOL

[DANRVAN]

LOL

Sounds like a bypass trust was setup to minimize estate taxes.