Living Trust and Stepped up Basis

[RightOn]

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?

[Roland Slugg]

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%.

[WhiteOleander]

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.