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Discussion Forum Index --> Tax Questions --> "Stepped-up" tax basis
Colby (talk|edits) said:
| 6 March 2007
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| Why is there no "stepped-up" tax basis on stocks owned by an irrevocable trust which, I am told, is no longer owned by the decedent? Where is this addressed in the Internal Revenue Code or any related court opinions?
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Kevinh5 (talk|edits) said:
| 6 March 2007
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| because it was a completed gift to a new taxpayer during life
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Michaelstar (talk|edits) said:
| 6 March 2007
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| An asset owned by an irrevocable trust is an asset of the trust. Since the trust can not die (it can only end based on the terms of the trust document) there is no one to die who's assets then receive a step up in basis.
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Dennis (talk|edits) said:
| 6 March 2007
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| Neither irrevocable nor technical trust ownership is the issue. The step up relates to whether or not the asset is includable in gross estate which would in turn depend on whether there was a grantor retained interest.
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Michaelstar (talk|edits) said:
| 6 March 2007
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| Dennis, you know better than I do but I have been under the impression that the grantor does not retain an interest in an asset that has been transferred to an irrevocable trust in order that the gift be completed.
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Dennis (talk|edits) said:
| 6 March 2007
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| Happens all the time. Valuation of many retained interests is specifically defined to be zero for gift tax purpose. Reg. 25.2511-1 for example.
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Riley2 (talk|edits) said:
| 6 March 2007
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| Colby, if you are asking when a step-up in basis of assets held in trust after the death of the first spouse is appropriate, then you should look at Section 2041 (Powers of Appointment) and 2044 (Marital Deduction Property).
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Colby (talk|edits) said:
| 7 March 2007
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| My mother's revocable trust became irrevocable when my father died in 1989. My mother died in 2006. The bank, administering the trust, is telling my sisters and I that a step up in cost basis would not be allowed. They are asking for a legal opinion from the lawyers who helped write the trust.
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Kevinh5 (talk|edits) said:
| 7 March 2007
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| I don't get why your mothers trust became irrevocable when your father died, unless it was a trust set up by your father for the benefit of your mother. Not necessarily the same thing.
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Colby (talk|edits) said:
| 7 March 2007
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| That was how the trust was written. My fathers trust would have become irrevocable had my mother died first - as I understand it. There were many questions about taxation back when it was written. My parents chose this based on the information they were given at that time.
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Kevinh5 (talk|edits) said:
| 7 March 2007
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| ah, so it was your Father's trust, which got stepped up basis when he died. It wasn't your mother's trust at all.
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Dennis (talk|edits) said:
| 7 March 2007
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| This one is for the lawyers, guys. Father's Trust/Mother's Trust says nothing about who the Grantor is and on whose estate tax return the assets are includable. These things can be written either way.
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Glmpllc (talk|edits) said:
| 7 March 2007
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| ...shooting from the hip here, but it sounds like the trust was set up so that the surviving spouse couldn't change provisions of his/her trust after the death of the other spouse. If so, then Mother created an irrevocable trust in 1989, plain and simple. Assuming it was drafted to exclude the trust assets from Mother's estate, I agree with the bank.
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Colby (talk|edits) said:
| 8 March 2007
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| Ihe IRS would probably say-this is purly conjecture-that the assets in an irrevocable trust have enjoyed greater security from liable lawsuits over the years as compared to the security of assets in a living trust, therefore the irrevocable trust should not get a step-up in basis and will have to pay capital gains tax on sold trust assets. This is the only reason I can think of for the seemingly unequal taxation of assets in various trusts.
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Dennis (talk|edits) said:
| 8 March 2007
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| The assets of all grantor trusts that have the types of retained interests and powers addressed in IRC ยง671-678 will be stepped up upon the death of the grantor. Neither liability protection nor revocability have any bearing on this.
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Colby (talk|edits) said:
| 8 March 2007
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| Thanks everyone for trying to clarify this subject. The water is still a bit muddy for me and most likely will stay that way. It is perfectly clear for my wife. She says, basically, just suck it up and pay the tax. As they say at Possum Lodge "I'm a man, I can pay, if I have to, I guess" - or something like that.
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Blrgcpa (talk|edits) said:
| 8 March 2007
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| It may originally been a revocable trust which became irrev when the original grantor died.
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