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Financial Planning / Tax Strategies


Subject:  Re: Trust Taxes Date:  10/23/2006  12:19 AM
Author:  Wradical Number:  89203 of 127753

Thanks for your reply Bill. Concerning a trust, under what circumstances would a trust chose to treat the assets as being sold at a distribution to the heirs?
It doesn't usually happen, but it probably happens often enough that the IRS provides a box to check, on the 1041, to make the election.

Maybe if:
>The securities (or other property to be distributed)has a low basis, but has appreciated in value;
>the trust or estate has a capital loss carryover of its own, to shelter any gain on the distribution, but if it terminates, the capital loss carryover flows out to the beneficiaries, who wouldn't or couldn't use it soon.
>i.e., they plan to keep the securities to be distributed, which probably have appreciated in value, and acquire the securiites, or other property, with a resulting higher basis.

With an estate, you just about always have a stepped-up basis; with a trust, you may or may not.

Now, if the heirs plan to keep the property a long time, they may not give a hoot what the basis is. If you know you'll never sell something, you don't care what the basis is.

Big exceptions:
>if the trust property in question is stock in an S Corporation, where the stock basis limits your deductible losses;
>or a fully-depreciated building, where you can start taking more depreciation, by treating the distribution as a purchase;
> and I'm sure there are others.

Situations like these would seem to be applicable with an old trust, where there has been no step-up due to the most recent death, or other pertinent event, and getting a basis step-up seems more important than might usually be the case.

A loss recognized on the sale to a beneficiary is not deductible unless the distribution is in satisfaction of a pecuniary bequest; that's been the rule since 1997; before that, an estate of trust could recognize gain OR loss on a deemed sale to a beneficiary.


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