stepped up basis

[gman]

Do assetts in an irrevocable trust recieve a step up in basis at anytime?(death of individuals that put property in trust.) I think not, but just reviewed a site stating they did.

[Burke]

The assets in an irrevocable trust receive stepped-up basis of the amount based on the law in effect at the decedents' death, IF it was a revocable living trust to begin with. The assets retain that basis and it does not change when the assets are sold or distributed to the beneficiaries. In the case of an RLT, it is considered an incomplete gift as the grantor(s) retain all rights of control. Therefore, it becomes part of the decedents' estate.

The key thing to remember is that this step-up (or down) treatment is based on the fact that the assets were or would have been included in the decedent(s)' estate for Estate Tax purposes, regardless of whether the estate actually met the requirements to file a 706. If, because of the type/nature/circumstances/characteristics of the trust, the assets are NOT considered as part of the decedents' estate for Estate Tax purposes, then no stepped-up basis occurs.

[gman]

Death in 2012

Decedent died in 2012. It has always been an irrevocable trust and was established in 1987. Now just need to get the correct basis for sale.

[appelman]

No step up/step down

Basis is the carrying basis for the trust, i.e. original basis plus any adjustments required along the way.

[gman]

thanks

Four children involved and that is what I have told the one I am dealing with. A couple of the others are saying
it is inheritance and want a step up in basis. Would you have a reference I could print for her?

[WhiteOleander]

Well, if the trust was irrevocable before the person died, it was a separate entity from the decedent. It owned the assets, not the decedent. So, the person died, the trust did not die. So, no step up for the trust. Maybe the client will understand it that way.

[Burke]

Try this one:

http://www.costbasis.com/stocks/trustdistributions.html.

The same reasoning applies to any asset in the trust, including real estate.

[New York Enrolled Agent]

Well, if the trust was irrevocable before the person died, it was a separate entity from the decedent. It owned the assets, not the decedent. So, the person died, the trust did not die. So, no step up for the trust. Maybe the client will understand it that way.

I don't think a definitive answer can be given without knowing the details of the trust. An irrevocable trust can also be a grantor trust. They are not mutually exclusive. If it was a grantor trust then I believe you would get the step-up.

Having said this, the chances are more likely than not that your answer is correct.

[WhiteOleander]

I don't think a definitive answer can be given without knowing the details of the trust. An irrevocable trust can also be a grantor trust. They are not mutually exclusive. If it was a grantor trust then I believe you would get the step-up.

Having said this, the chances are more likely than not that your answer is correct.

Yes, that's true. There is never an absolute answer in the tax code. There always seems to be a "Yeah, but"

[appelman]

NYEA is right, of course.

The criterion for step-up/step-down is that the property in question be included in the decedent's estate, which will generally be the case for a grantor trust.

[mactoolsix]

Step-up basis w/irrevocable trust

is possible. I recently did a tax return for my MIL estate when she passed. She had an irrevocable trust to allow her to qualify for Medical if the need ever arose. Being an irrevocable trust, we at first assumed there would be no step-up in basis. I called the attorney that wrote the trust and she cited several clauses she had included in the trust to allow step-up in basis.

I would call the attorney that set up the trust - after all that's what they got paid for.

[Burke]

There is a way to keep the assets from being appropriated by Medicare (or depleted prior to that event) but it would have to have the effect of including it in the estate for Estate Tax purposes in order to conform with IRS code about stepped-up basis.

[Kram BergGold]

What you have to do

If the decedent filed a state inheritance tax return or a Federal Estate Tax Return and the assets were included then you have a step up. If the estate was too small for either to be filed then you need a copy of the Trust document to see if there was a clause or clauses that made the trust defective, which could result in a step up.

[appelman]

Oops!

Maybe Kram just worded his post wrong. A grantor trust will get the step-up/step-down; an intentionally defective grantor trust will not, since for estate tax purposes, an IDGT is treated like a non-grantor trust.