Assets moved to Living Trust - Taxable Event?

[Zee]

When assets (appreciated stock) are moved from a regular brokerage account to a family living trust, is this a taxable event?

In this situation (like most) the parents are continuing to receive the dividends and the trust was set up to avoid probate with the stock going to beneficiaries at their death.

I believe the answer is a taxable event isn't created. The grantor will pay taxes on the income, and the beneficiaries will receive a stepped up basis at the grantor's death. The purpose is to avoid probate and reduce estate taxes.

Is this correct?

[Davc]

Is this correct?

Yes. And the costs of creating the trust are not deductible.

[Roland Slugg]

The purpose is to avoid probate and reduce estate taxes. Is this correct?

"Yes" as to the non-taxable nature of the transfer. (I'm assuming that the Trust is a revocable living trust.)

"Yes" as to the stated objective to avoid probate.

"No" as to the stated objective to reduce estate taxes. The transfer will have no affect on the estate tax.

[Zee]

"Yes" as to the non-taxable nature of the transfer. (I'm assuming that the Trust is a revocable living trust.)

"Yes" as to the stated objective to avoid probate.

"No" as to the stated objective to reduce estate taxes. The transfer will have no affect on the estate tax.

Agreed. Bad choice of words. I understand it will have no impact on estate taxes.

[ED SMITH]

There is a general misunderstanding that a revocable living trust will entirely avoid probate. That is only true if no one challenges it, which in most cases doesn't happen, but it is always a possibility. The better the trust is written, the less likelyhood of it being challenged.

Also, a poorly written trust could be rejected by the county recorder when title is tranferred. This would also result in probate.

[Davc]

Add to that the failure to place new assets into the trust.

[dwert]

Trust Does Reduce Estate Taxes

A properly written trust most certainly DOES reduce estate taxes for married people - not for the first to die but for the second to die. If I create a trust with only a Marital Trust provision, all the estate assets move to my spouse and my $2M exclusion is squandered. My spouse dies and now ALL the assets are in her estate and she only has one $2M exclusion to reduce from all the assets of the both of us. If on the other hand if I created a trust with both a "By Pass" Trust provision and a "Marital" Trust, I have now sheltered $4M of our estate from IRS taxes, because I have allowed the first $2M of my estate to be exposed to taxation and then be reduced to zero by the exclusion. If you are single and don't care how your estate is to used - set up all your accounts with "TOD" provisions (transfer on death) quick and easy - no estate, no probate, no trust, no expenses.

[Burke]

You have misunderstood the posts. We are talking about Revocable Living Trusts. They do not avoid Estate taxes as the grantor retains full control of the assets, even though they may not go through probate. And TOD designations may not go through probate either, but they are certainly counted for Estate tax purposes (Form 706).