Taxpayer inherited a part ownership (one-seventh) in a family partnership (rental farmland) in 1973. Sometime since then, he and wife formed a family trust for all assets, including the assets of the partnership although tax returns have been filed as individuals. In 2006, wife died and all assets remain in trust with taxpayer as sole owner. In 2007, the land was sold outside the partnership and he received his one/seventh of the proceeds. Since the asset was in the family trust, does taxpayer obtain a stepped-up basis for his wife's share even though he was the one inheriting the asset originally?
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An afterthought
This is not a community property state. -
I assume the family trust for all assets was a revocable granter trust. That is why all income was reported on their individual returns rather than a 1041.
That being the case, putting the farmland inside the trust means the wife became part owner. Therefore, at her death, her share of the farmland receives a step up in basis as it must be included on her estate return.
If the family trust were an irrevocable trust, the farmland would not have received step up in basis at her death.Comment
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Yes, it was a revocable grantor trust formed in 1986 with only assets of taxpayer and spouse in the trust and they were co-trustees; the land was put in the trust at that time. They claimed income (rent) from the land on their joint returns since that time. So..I am assuming that taxpayer in effect gave his wife half of the land at that time. Then when she died in 2006, all assets went to him so he can step up her half of the basis in the land using 2006 values. Is my logic okay?
Thanks to Bees Knees for his clear response.Comment
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Your logic is OK.Comment
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