BASIS

[TAXMAN]

Momma died setting up trust with stock. Dad gets dividends until he dies. Dad died and stock distributed to children. This was an irrevokable trust. Question is: Is basis to children determined at moms death or at dads death? Niether the children or dad could sel that stock until dad died. There also was a piece of real estate in the trust also that was being use as a rental. Can someone give me some direction? Many thanks.

[OldJack]

Basis is at mom's death as dad only had an income interest.

[TAXMAN]

Ok finally got the rest of the info. Does this change anything?

Family Trust created at death of mom. Trust doc says "Until the death of my spouse my Trustee shall pay out the net income or principle of the trust to my spouse for his support. The Family trust shall not terminate for any reason while my spouse is living. Upon the death of my spouse. principal and income in the Family Trust shall be distributed to my children."

It would appear based upon this language that the children could not take the assets from the trust untill dad's death, therefore do we get basis at dads death(step up/step down).

Sounds almost like children get to step up basis at time of death since children could not receive anything until death of Dad.

Am I on the right track or am I woefully wrong?

Many thanks

[TAXMAN]

Not sure how to move back up since I received additional information. Just checking to see if new info makes a difference.

[Maribeth]

Not sure how to move back up since I received additional information. Just checking to see if new info makes a difference.

The trust was created at the time of mom's death. The spouse received his income during his life from the trust.

Once the spouse has died, the trust is distributed to the children.

The assets that were distributed to the trust upon the mother's death had a stepped-up basis. Activity inside the trust, as to buying/selling/reinvestments affect that basis.

The basis to the children upon distribution is the basis that the trust has in the assets. It is NOT stepped-up or stepped-down because of the father's death.

Maribeth

[OldJack]

As I stated above, "Basis is at mom's death as dad only had an income interest."

However, basis would change in the trust for any normal sale or purchase of assets by the trust during the period before distribution.

[kcjenkins]

I agree.

[TAXMAN]

Thanks all. I Kinda thought this might be the way. However sometimes 2 or 3 heads are better than one. :rolleyes:

[jainen]

>>dad only had an income interest<<

To the extent Mom owned the stock as non-marital property, which is not detailed in the original post, it would be included in her estate and get the basis adjustment when she died. According to Taxman's quote, Dad had the right to receive PRINCIPAL as well as income from the trust. If Dad was a trustee or otherwise controlled that right, I think that it was included in Dad's estate and therefore got a second basis adjustmnet (subject to the special rules if Dad died in 2010).