Irrevocable trust advice

[Terry53029]

  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. 

[George4Tacks]

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

[Terry53029]

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

[sjrcpa · Accepted solution]

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.

[Terry53029]

"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.

[George4Tacks]

When was the trust "funded"?
Most trusts are set up as revocable during the lifetime of the trustor. It becomes irrevocable on death of the trustor.
Look at the 1099 for the stock account for the last year of life. What name? What ID number?

[Terry53029]

the trust was set up as an IRREVOCABLE in the trust language. the trustee has the discretion to distribute assets or income at his sole discretion, making it a complex trust

[Terry53029]

George, the client told me the 1099's will come in the trust EIN for the stocks, homes titled in trust name I am assuming when trust was setup (will find out for sure

[sjrcpa]

See here for the actual fact pattern. https://accountants-community.intuit.com/questions/1906017-another-trust-question 

@Terry53019 - for future reference it would be best to add any new info to your original post.

[sjrcpa]

You implied the trust was established and funded before death. The facts make a difference.

[Terry53029]

the trust WAS established before death and I believe (have to check with client) that it was funded when setup

[jctax]

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.