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Living Trust and Stepped up Basis

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    Living Trust and Stepped up Basis

    Taxpayer deceased in 2013 with a living trust in place. They are in California and everything is held as "community property".

    Based on what I was told, it is a A-B trust setting. After he passed away, 50% of the properties went to his A-trust and the other 50% of the properties went to the B-trust of the surviving spouse.

    Do both the 50% of properties that went to the A trust and the other 50% of properties that went to the B-trust get the stepped-up tax basis?

    #2
    Yes. Code §1014(b)(6)

    Whether or not an asset is community property is a factual one, so the fact that the property was held in the decedent's living trust should not affect anything ... at least I don't think it should.

    Opinion: It has always struck me as illogical and patently unfair that property owned by a H&W in one of the nine community property states (plus Alaska if the couple "opts in") gets a double/full step-up in basis upon death, whereas property owned by a H&W in all the other states gets only a partial step-up in basis ... usually 50%.
    Roland Slugg
    "I do what I can."

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      #3
      Originally posted by Roland Slugg View Post
      Yes. Code §1014(b)(6)

      Whether or not an asset is community property is a factual one, so the fact that the property was held in the decedent's living trust should not affect anything ... at least I don't think it should.

      Opinion: It has always struck me as illogical and patently unfair that property owned by a H&W in one of the nine community property states (plus Alaska if the couple "opts in") gets a double/full step-up in basis upon death, whereas property owned by a H&W in all the other states gets only a partial step-up in basis ... usually 50%.
      I always thought the same thing. But an instructor explained it one time to me. So, I have taken this as correct.

      He said that in a CP state, the entire FMV of the asset(s) must be included in figuring the inheritance estate value. Not just the percentage owned by the spouse, if any. In a SP state, only the asset(s) owned by the deceased spouse, or their percentage if any is included. So, Congress cannot include it on one side and take it away on the other.
      You have the right to remain silent. Anything you say will be misquoted, then used against you.

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