Cost Basis for Remainderman

[sali]

Person A died in 1997. The will stipulated that the personal residence of Person A would be available (from the deed of distribution "the Personal Representative has granted, bargained, sold and released, and by these present does grant, bargain, sell and release to Person B for and during her natural life or until such time as she may marry") to Person B. Person B passed away in 2009 and the trustee for the remainderman (remainderman is disabled) sold the property. What is the cost basis to be used to report the sale of this property for the remainderman (the title of real estate actually refers to the seller [remainderman] as a (d)(4)(A) Trust which was set up for the disabled remainderman's care)? Would basis be the stepped up basis of the property at the time of death of Person A? Does the remainderman pay capital gains taxes on the gain of this property? Or does the trust pay? Thanks.

[JG EA]

Person A died in 1997. The will stipulated that the personal residence of Person A would be available (from the deed of distribution "the Personal Representative has granted, bargained, sold and released, and by these present does grant, bargain, sell and release to Person B for and during her natural life or until such time as she may marry") to Person B.

So, I'm not sure what this part means - is it a life estate? I don't understand the language but it sounds like it might be a life estate.

Person B passed away in 2009 and the trustee for the remainderman (remainderman is disabled) sold the property.

OK, using this definition of remainderman: "The person who inherits property when someone passes away, and has executed a "life estate deed." For example, John owns a house. He deeds it to himself for life, and then to Jane upon his death. Jane is the remainderman." Then the disabled guy inherited.

What is the cost basis to be used to report the sale of this property for the remainderman

This normally would be the Fair Market Value at the date of death of A since Person B only had a life estate - if that is what the situation was.

(the title of real estate actually refers to the seller [remainderman] as a (d)(4)(A) Trust which was set up for the disabled remainderman's care)? Would basis be the stepped up basis of the property at the time of death of Person A? Does the remainderman pay capital gains taxes on the gain of this property? Or does the trust pay? Thanks.

This would depend on who actually sold the property. If it was the trust and the trust is continuing on then the trust would pay taxes. If it was the R man then he would report and pay capital gains on any profit. What number was it sold in? SS# or EIN?

[Corduroy Frog]

Half and Half

Not familiar with South Carolina law, but if this was left in trust to the remainderman with life estate for person B, the basis could very well be:

a) One-half of the total property in trust FMV as of the date of death of Person A

PLUS

b) One-half of the total property in trust FMV as of the date of death of Person B

This scenario happens frequently in Tennessee.

[Burke]

There are a couple of unanswered questions here.
1. Was this a personal residence wholly owned by Person A?
2. Was this a personal residence in which Person B had any ownership interest at all, either prior to Person A's death or who may have inherited any portion at Person A's death?

If not, then the estate of Person A received a stepped-up basis at Person A's death. The wording quoted in the OP seems to indicate the life estate was granted to Person B in Person A's will. The remainderman could not sell or otherwise encumber the property during this time, so had no rights of ownership until the death of Person B.

At the death of Person B, the remainderman inherited the entire interest. Since he was disabled, the property went into a trust set up for him, and it sounds like the trust sold the house, and the trust would pay the taxes. The cap gains rates are the same for trusts as individuals.