A trust holds rental real estate properties. The original grantor/trustee died. All rental real estate properties will remain in the trust and will be managed by son, successor trustee. Do the properties receive basis step-up? If stepped-up to FMV, does the trust begin depreciation of FMV beginning with year 1? Is all prior unrecaptured section 1250 gain wiped out?
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When were the properties transferred into the trust - before death or after death?Uncle Sam, CPA, EA. ARA, NTPI Fellow -
Before death.Comment
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Might depend on your state. IRS maintains that some "trusts" are not really trusts at all, because the grantor still has control and the transfer is revocable at option of the grantor. In such a case, assets receive stepped-up value upon death of the grantor. Such a trust where the transfer is irrevocable and control is relinquished qualify as a trust for IRS purposes, and there is no stepped-up basis.
The trusts that the IRS do not recognize are commonly lawyer-designed vehicles to enable elderly grantors to avoid seizure by state-run nursing homes.Comment
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