Irrevocable trust advice

Forum|Forum|6 years ago
December 7, 2019
5 replies
1 view

Need some advice from knowledgeable trust preparers. Have a long-time client, and their parents passed this year. The parents set up an irrevocable trust< (I read the trust, it is an irrevocable complex trust) the assets are stocks and two homes (personal use only). My understanding of irrevocable trusts is, if trust sell assets and receive 1099’s in trust EIN, then no step-up in basis. If the trust distributes assets, and beneficiaries title them in their name then sell receiving 1099’s in beneficiaries SS they will receive step-up basis. thanks in advance for your help.

ProSeries Professional

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Best answer by sjrcpa

Based on your description no one gets a step up. Trust's basis = father's basis.

Trust assets distributed to beneficiaries and then sold have father's basis, too unless trust elects to recognize gain (and pay tax) on the FMV at distribution.

I'd double check the facts and your interpretation of the trust doc. Most people would not set it up this way.

George4Tacks

Level 15

When did the trust become irrevocable? Upon death? Prior to death?
Was a 1041 being filed during the parents lifetime?

Answers are easy. Questions are hard!

T

Terry53029

Author

Intuit Community Champion

prior to death, father died this year was set up in 2017 as irrevocable trust. Never filed 1041, I've read the trust, and have a meeting next week with son (trustee) to find out why. I did the fathers return also for last couple of years, and was never told about the trust, and I know his income from his stock was +- $60000.00

sjrcpaAnswer

Level 15

Based on your description no one gets a step up. Trust's basis = father's basis.

Trust assets distributed to beneficiaries and then sold have father's basis, too unless trust elects to recognize gain (and pay tax) on the FMV at distribution.

I'd double check the facts and your interpretation of the trust doc. Most people would not set it up this way.

The more I know the more I don’t know.

T

Terry53029

Author

Intuit Community Champion

"After Death
If, after your death, your trust transfers your home to a beneficiary, that individual becomes responsible for any taxes due. The real estate inheritance is not taxable; the Internal Revenue Service does not consider it income. If your beneficiary sells it, however, he becomes personally responsible for capital gains tax on the proceeds. His tax basis is not what you initially paid for the property, but what it is worth at the time of your death, so he may not realize any significant capital gains. This is particularly true if he sells relatively soon after he inherits". I've been doing quite a bit of reading on internet, and I see the above quote in several places on Irrevocable trusts. I just wanted to see what the folks here had to say. I plan on calling the lawyer who drafted the trust.

J

jctax

Level 3

I have this exact situation right now. The 1099-S was issued in the Trust's ID number. The beneficiary sold it soon after death. I need to file 1041 since the Trust received interest. Do I need to include sale of house on the 1041 or should it be a sale on the beneficiary's return. With it being issued under the Trust number I'm not so sure.