Living Trust

[John3cpa]

Client's father just died, had a living trust with about 400K of mutual funds, some of which have been owned for a long time with probably low basis. My client and his brother are "Successor Trustees" of the living trust. The brothers want to sell all holdings in the trust then liquidate the trust and split the cash 50/50. Won't this create a capital gain on the final return of the father which could be avoided if the brothers transfer ownership of the mututal funds to themselves and get the stepped up basis? Or is there a problem with this since the funds are owned by the trust and they are now trustees??
Inheritance by will is fine...trusts always give me the "shivers"!

[JoshinNC]

the first thing you need to find out is:

Client's father just died, had a living trust with about 400K of mutual funds, some of which have been owned for a long time with probably low basis. My client and his brother are "Successor Trustees" of the living trust. The brothers want to sell all holdings in the trust then liquidate the trust and split the cash 50/50. Won't this create a capital gain on the final return of the father which could be avoided if the brothers transfer ownership of the mututal funds to themselves and get the stepped up basis? Or is there a problem with this since the funds are owned by the trust and they are now trustees??
Inheritance by will is fine...trusts always give me the "shivers"!

did Dad name the living trust as benefiary of the account or owner. If he named it as owner and not beneficiary he screwed up. Upon his death the account will pass to the named beneficiary(s) or to his estate if none are named (effectively eliminating the usefulness of the trust).

if the trust is the named beneficiary than the trust passes the assets to the trust beneficiaries (presumably the sons) at his death and the trust ceases to exist. there is no tax benefit to the trust and the funds still recieve a step-up in basis at death of Dad.

This is a situation that i commonly use with my clients for explaining why i should be Dad's tax pro and investment advisor, because then all the pieces fall together much better. Call the broker or brokerage if using a discount house and find out who the named beneficiary(s) were.